Interest rates on subsidized Stafford loans to undergraduate students will be reduced in annual steps to 3.4 percent by July 1, 2011. The rate beginning July 1, 2009, will be 5.6 percent. Interest rates on all other Federal Stafford loans issued since July 1, 2006, are fixed at 6.8 percent. New PLUS loans carry rates of 8.5 percent.
If you have a Stafford or PLUS loan issued prior to July 1, 2006, the interest rate will continue to be variable. The rate will be adjusted annually effective July 1, based on prevailing interest rates on short-term government securities.
For information about the current interest rates on
variable-rate Stafford and PLUS loans view the Federal Stafford, PLUS loan interest rates summary
table for specific rate information.
Here are items to consider to reduce the cost of borrowing for college:
- Reduced loan fees. Effective July 1, 2009, the maximum origination fee that may be charged Federal Stafford-loan borrowers will be reduced to 0.5 percent.
Federal law requires that guarantors, such as USA Funds®, collect an additional 1-percent federal default
fee on all Federal Stafford and PLUS loans that they guarantee.
- Borrower benefits. Some lenders offer interest-saving borrower benefits.
Typically, these benefits provide a reduction in the interest rate for
borrowers who permit their loan payments to be deducted automatically from
their bank account or consistently make on-time loan payments for several
years.
- Student-loan-interest deduction. You may qualify to deduct up to $2,500 of the education-loan
interest that you paid during the tax year, subject to income limits and other
restrictions. You don't have to itemize deductions to claim the student-loan
interest deduction; however, you must file Form 1040 or Form 1040A. If you're
married, you must file jointly to claim the deduction.
- Federal interest subsidy. Students who demonstrate economic need may qualify for subsidized Stafford loans. The federal government pays the interest that accrues on these loans while the borrower attends school, for six months after the borrower leaves school, and during periods when the borrower is authorized to defer loan payments. For an undergraduate student who borrows a total of $10,000 over four years of college, this subsidy could produce interest savings of more than $2,000. To determine their eligibility for subsidized Stafford loans and many other forms of financial aid, students must complete and file the Free Application for Federal Student Aid by the date recommended by their respective schools.