Interest rates on new federal student loans will drop for 2015-2016

Interest rates on new federal student loans will drop for 2015-2016Every July 1, the new interest rates for federal student loans go into effect. This is usually unwelcome news for veterinary students, because typically the rates go up. This year, however, things are different.

Interest rates on student loans are tied to the high yield of the 10-year Treasury note. On May 13, the Department of the Treasury announced that this year’s auction set the yield at 2.237 percent. That was down from 2.612 percent last May. This means that the rates for veterinary student loans will go down.

The rates for the 2015-2016 academic year on Stafford loans for veterinary students and other graduate and professional students will drop to 5.85 percent from 6.21 percent. Undergraduate Stafford loans will drop to 4.29 percent from 4.66 percent. The rate on GradPLUS loans also will drop to 6.84 percent from 7.21 percent.

In 2013, Congress voted to change the way interest rates on federal student loans are determined by pegging them to the last 10-year Treasury auction each May. Prior to that, federal student loans had fixed rates that were set by Congress. The change was made because the interest rate for the undergraduate subsidized Stafford loan was set to dramatically increase from 3.4 percent to 6.8 percent in 2012. As a result, Congress extended the 3.4 percent for another academic year and then changed how loan rates are determined.

It was also in 2012 when Congress—as a cost-savings measure—opted to deny graduate and professional students the in-school subsidy on Stafford loans. The in-school subsidy is when the federal government pays the interest on a federal student loan while the student borrower is enrolled in school. The AVMA faces a tough, uphill battle in restoring this subsidy during the reauthorization of the law—the Higher Education Act—that governs higher education student aid. Lawmakers are toying with discontinuing the in-school subsidy for undergraduates as a means to cut spending.

Lawmakers in Congress have already introduced more than 50 bills making tweaks to various aspects of the Higher Education Act. As Congress works to reauthorize the law, the AVMA is working hard to advance legislation that will improve student loan terms for borrowers and conditions for repayment of student loans. AVMA’s Board of Directors will soon be reviewing two important bills to add to our legislative agenda that will help veterinary students: H.R. 649, which will give borrowers the right to refinance their student loans any time the interest rate is lowered, and H.R. 1285, which would abolish origination fees on student loans.

2 thoughts on “Interest rates on new federal student loans will drop for 2015-2016

  1. It’s about time that we see a decrease in the loan interest rates! I sincerely hope that HR 649 passes so recent graduates (myself included) can actually work at paying off principle rather than spending hundreds or thousands of dollars on interest.