Congress passed legislation extending the current interest rate for undergraduate, subsidized loans.  The Temporary Surface Transportation Extension Act of 2012 (H.R. 4348) contains language that revises the Higher Education Act by extending the 3.4 percent interest rate through June 30, 2013.  The bill will be sent to the President for his signature which is expected shortly.

For undergraduate, subsidized loans first disbursed on or after July 1, 2011, but before June 30, 2012, the interest rate is 3.4 percent.  Without Congressional action, the interest rate was scheduled to reset to 6.8 percent on July 1, 2012.

In addition, the bill contains a provision that will affect new borrowers who receive their first disbursement of loan proceeds on or after July 1, 2013.  The provision limits the interest subsidy that such a borrower may receive on a subsidized loan for a period not to exceed 150 percent of the educational program.  Once this period expires, the borrower would be responsible for paying the accruing interest.

For more information

To view and download the legislative language and the joint explanatory statement, click here.