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Interest Rates Effective July 1, 1999
On July 1, 1999, the interest rate on existing Federal Stafford, SLS, and PLUS loans that are subject to the variable rate provision will change. Due to today's healthy economy, the financial market rewarded students and families with a half percent drop in college loan rates. The chart on the back page of this edition of Shoptalk outlines the change in interest rates for all variable rate loans, including loans with first disbursement from July 1, 1999, through June 30, 2000.
When the Department of Education (ED) publishes new variable interest rates, guarantors are responsible for applying the new interest rates to new loans guaranteed, and lenders are responsible for adjusting payment terms and notifying borrowers of their new rate, if required. Servicing issues with respect to interest rate adjustments are discussed in detail in Section 7.7 of the Common Manual.
Calculation of Rates
The Federal Stafford interest rate formula is the bond equivalent rate of 91day Treasury bills auctioned at the final auction held prior to June 1, plus 1.7 percent during inschool, grace, and deferment periods and plus 2.3 percent during periods of repayment and forbearance, capped at 8.25 percent. The new interest rate as of July 1, 1999, for Federal Stafford loans is 6.32 percent during inschool, grace, and deferment periods and 6.92 percent during repayment and forbearance.
The lender yield for Federal Stafford loans is the 91-day Treasury bill plus 2.2 percent during inschool, grace, and deferment periods and plus 2.8 percent during periods of repayment and forbearance.
The Federal PLUS interest rate formula is the bond equivalent rate of the 91day Treasury bill auctioned at the final auction held prior to June 1, plus 3.1 percent, capped at 9 percent. The new interest rate as of July 1, 1999, for Federal PLUS loans is 7.72 percent.
Disclosing the New Interest Rates
Lenders are required to disclose applicable interest rates to borrowers at or before disbursement. Some lenders fulfill this requirement by forwarding TG's Notice of Guarantee/Disclosure Statement (NOG) to the borrower, while other lenders print and send their own.
TG's new NOG contains an interest rate message that states, "This is a variable rate, which may change each July 1. The interest rate shown is the rate in effect at the time of guarantee." To satisfy the actual interest rate disclosure requirement for the July 1 interest rate change, lenders and servicers using TG's NOG should send the original NOG plus the new Interest Rate Addendum to all borrowers whose loans were guaranteed prior to July 1, but not actually first disbursed until on or after July 1, 1999.
The addendum including the new July 1, 1999, Stafford and PLUS interest rates is now available on TG's corporate website, TG Online, at http://www.tgslc.org. The new Interest Rate Addendum will be available in PDF format in the AdvanTG™ version 2.2 CD in late July.
New Interest Rate Addendum
TG's customers may want to use the new Interest Rate Addendum in two situations: (1) If the loan is guaranteed prior to July 1 with a first scheduled disbursement date on or after July 1, the Addendum can be used to determine the correct interest rate at the time the loan is first disbursed; or (2) If the borrower requests the holder reprint the NOG, the borrower will use the Addendum to determine the applicable interest rate formula on the loan at the time of guarantee. The interest rate formula posted on the reprinted NOG may not be the formula that was initially disclosed.
Questions
For additional information about the interest rate changes, call Kyle Smith at (800) 2529743, ext. 4894, or send an email message to kyle.smith@tgslc.org.
Interest Rate Changes
| Loan Type |
First Disbursement Date |
Previous Interest Rate |
New Maximum Rate Effective 7/1/99 |
| Stafford Loans subject to windfall profits. Originally fixed rate 7% loans. |
Before 7/1/94 |
7.00% |
7.00% |
| Stafford Loans subject to windfall profits. Originally fixed rate 8% loans. |
Before 7/1/94 |
8.00% |
7.72% |
| Stafford Loans subject to windfall profits. Originally fixed rate 9% loans. |
Before 7/1/94 |
8.26% |
7.72% |
| Stafford Loans for repeat borrowers subject to windfall profits. Originally fixed rate 8%/10% loans.* |
On/After 7/23/92 |
8.26%* |
7.72% |
| 8%/10% Stafford Loans subject to windfall profits when interest rate is 10%. |
Before 7/23/92 and to new borrowers between 7/23/92 and 9/30/92 |
8.41% |
7.87% |
| Variable Rate Stafford Loans |
Between 10/1/92 and 6/30/94 |
8.26% |
7.72% |
| Variable Rate Stafford Loans |
Between 7/1/94 and 6/30/95 |
8.25% |
7.72% |
| Variable Rate Stafford Loans during the in-school, grace, and deferment periods. |
Between 7/1/95 and 6/30/98 |
7.66% |
7.12% |
| Variable Rate Stafford Loans during the repayment period (except deferment periods). |
Between 7/1/95 and 6/30/98 |
8.25% |
7.72% |
| Variable Rate Stafford Loans during the in-school, grace, and deferment periods. |
On/After 7/1/98 |
6.86% |
6.32% |
| Variable Rate Stafford Loans during the repayment period (except deferment periods). |
On/After 7/1/98 |
7.46% |
6.92% |
| SLS and PLUS Loans |
Before 10/1/92 |
8.68% |
8.13% |
| SLS Loans |
Between 10/1/92 and 6/30/94 |
8.53% |
7.98% |
| PLUS Loans |
Between 10/1/92 and 6/30/ 98 |
8.53% |
7.98% |
| PLUS Loans |
On/After 7/1/98 |
8.26% |
7.72% |
*Note: These loans will be capped at 8% during the first 48 months of repayment.
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