Federal Updates

Interest rates — how low will they go?

They said it couldn't happen again. For the last two years, Stafford and PLUS loan interest rates have dropped significantly, bringing great benefits for student loan borrowers across the nation. Now, amazingly, lightning has struck a third time, and the rates are even lower — the lowest they have ever been in the history of the FFELP.

On July 1, 2003, interest rates on new and existing Federal Stafford, SLS, and PLUS loans that are subject to the variable rate provision will be as follows:

• Federal Stafford loans during in-school, grace, and deferment periods — 2.82 percent.
• Federal Stafford loans during repayment and forbearance — 3.42 percent.
• Federal PLUS loans — 4.22 percent.

Calculation of rates
The following details apply to the calculation of rates for Federal Stafford loans:

• The loan interest rate formula is based on the bond equivalent rate of 91-day Treasury bills (91-day T-bill) auctioned at the final auction held prior to June 1.
• During in-school, grace, and deferment periods, the formula is the 91-day T-bill plus 1.7 percent, capped at 8.25 percent.
• During periods of repayment and forbearance, the formula is the 91-day T-bill plus 2.3 percent, capped at 8.25 percent.

For Federal PLUS loans first disbursed on or after July 1, 1998, the interest rate formula is the bond equivalent rate of the 91-day T-bill auctioned at the final auction held prior to June 1, plus 3.1 percent, capped at 9 percent.

Rates not yet available
Additional interest rates will be available later in June, when the rates upon which they are based will be determined.

• Older PLUS/SLS loans: Interest rates for older PLUS/SLS loans are based on the weekly average of the one-year constant maturity Treasury yield for the last calendar week ending on or before
  June 26. These rates are unavailable until the end of the month.
• HEAL portion of Federal Consolidation loans: The HEAL portion of Federal Consolidation loans is based on the average of the bond equivalent rates of the 91-day T-bills auctioned for the quarter ending June 30. These rates are also unavailable until the end of the month.

To access TG's annual interest rate chart for applicable interest rates, visit www.tgslc.org/pdf/intratechart.pdf.

Disclosing the new interest rates
To satisfy the interest rate disclosure requirement, lenders and servicers may choose to send TG's Notice of Guarantee/Disclosure (NOG) to the borrower. When doing so, the lender or servicer should send the original NOG plus the Interest Rate Addendum to borrowers whose loans were guaranteed before July 1, but not actually first disbursed until on or after July 1, 2003. (Some lenders print and send their own disclosure notices.)

Lenders should also send the Interest Rate Addendum when responding to NOG reprint requests. The borrower can then use the addendum to determine the applicable interest rate formula for the loan based on the time of its guarantee, which may vary from that posted on the reprint.

TG's 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." The addendum includes the new July 1, 2003, Stafford and PLUS interest rates and is available on TG's Web site at www.tgslc.org. It is available in both the For Schools and For Lenders sections of the Web site.

Questions
For questions about the interest rate changes, call Kyle Smith at (800) 252-9743, ext. 4894, or send an e-mail message to kyle.smith@tgslc.org.

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