Another important benefit is that Stafford loans are made at interest rates below what a borrower with no credit history, collateral, cosigner or regular income would ordinarily pay. They are the best option available in the consumer marketplace for education borrowers.
The exact maximum interest rate on a loan depends on several factors: when the loan was made, whether the borrower is still in school or a deferral period, and sometimes whether the loan is subsidized or unsubsidized.
New Loans as of October 1, 2007
The budget reconciliation law enacted in September 2007 reduced the interest rate on new subsidized Stafford loans to undergraduates. Unsubsidized Stafford loans will remain at 6.8 percent. Interest rates on new subsidized Stafford loans are as follows:
• 6.0 percent for a loan first disbursed between July 1, 2008, and June 30, 2009
• 5.6 percent for a loan first disbursed between July 1, 2009, and June 30, 2010
• 4.5 percent for a loan first disbursed between July 1, 2010, and June 30, 2011
• 3.4 percent for a loan first disbursed between July 1, 2011, and June 30, 2012
Because the interest rate under the new law does not extend to loans disbursed after June 30, 2012, the rate will revert to 6.8 percent.
Existing Loans Made From July 1, 2006 Through September 30, 2007
The maximum interest rate on both subsidized and unsubsidized Stafford loans made during this fifteen-month period was 6.8 percent. That rate applies when the borrower is still in school and when the loan is in repayment. Many loan providers provided interest rate discounts for on-time and electronic payments.
Existing Loans Made Before July 1, 2006
Most existing loans, subsidized and unsubsidized, made from July 1, 1998, through June 30, 2006, carry a variable interest rate. The rate is reset annually on July 1. The formula for resetting rates follows:
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In-School
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In-Repayment
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Average 91-day T-bill rates + 1.7% up to a maximum of 8.25%
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Average 91-day T-bill rates + 2.3% up to a maximum of 8.25%
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On July 1, 2008, the variable rate was reset to 4.21 percent for loans in repayment (or forbearance). The rate that applies to Stafford loans during In-School, Grace, or Deferment periods is 3.61 percent. Both rates apply until June 30, 2009.
Learn more about FFELP: