Interest Rates for FFELP Loans Made After October 1, 1998
The U.S. Department of Education (ED) recently issued a Dear Colleague Letter (DCL) announcing the interest rates on Federal Family Educational Loan Program (FFELP) loans made on or after October 1, 1998. The bill entitled The Higher Education Amendments of 1998, which reauthorizes the Higher Education Act of 1965, has been passed by both Houses of Congress and is expected to be signed by the President in the near future. The legislation effectively extends the current interest rate formulas to Stafford and PLUS loans made between October 1, 1998 and July 1, 2003 (see table below). The effective date is October 1, 1998, even if the bill becomes law after that date.
The bill contains a change in the formula for calculating interest rates
on consolidation loans (see table below). The new formula provides
that the interest rate on new consolidation loans is equal to the weighted
average of the loans being consolidated, rounded up to the nearest one-eighth
of one percent, capped at 8.25 percent. The new formula applies to
any consolidation loan for which the application is received on or after
October 1, 1998. The effective date is October 1, 1998, even if the
bill becomes law after that date.
| Loan Type | During | Bond Equivalent Rate | Additional Sum | Maximum Rate | Effective Rate | |
| Student (Subsidized and Unsubsidized) | In-school, grace and deferment periods | 5.16% | 1.7% | 8.25% | 6.86% | |
| All other periods | 5.16% | 2.3% | 8.25% | 7.46% | ||
| PLUS | All periods | 5.16% | 3.1% | 9.00% | 8.26% | |
| Consolidation (Applications on or after 10/1/1998) | All periods | Weighted average of the interest rates on the loans consolidated, rounded to the nearest higher 1/8th of one percent. | 8.25% | Weighted average or maximum rate, whichever is lower. | ||
Any questions regarding the DCL can be directed to ED's policy staff at
(202) 708-8242. A copy of the DCL is available on ED's web site at
www.ifap.ed.gov, if you are unable to access the web site and would like
a copy, please contact Lynda Reid at (801) 321-7211.