Student Loan News, Updates and Blog Posts

Answer: Bad .

Since October 1, 1992 when the Stafford loan was first introduced there have been 17 academic periods with accompanying interest rates. During the mid 90’s rates hit an all-time high at 8.5% before falling as low as 3.37% for the 2004-2005 school year. Today interest rates stand at 6% fixed for subsidized Stafford loans and 6.8% for unsubsidized and graduate Stafford loans. But rates weren’t always fixed.

Prior to July 1, 2006 interest rates were variable and subject to change each year based on the 91-day T-bill, which is influenced by the Fed Funds Rate. Since ‘06 when the rates were moved over to a fixed platform the economy has been spiraling downward, which has been hurting everyone, including students.

In past years when rates were variable students could ride out the high interest rates when the economy was thriving and wait for them to fall before consolidating and fixing them, but not now. Now your fixed interest rate is locked in for the life of the loan.

To show you the interest rate disparity between the current 6-6.8% level versus those who are holding on to pre-7/1/06 variable rates consider the example below. If a student took out a Stafford loan during the 2004-2005 school year and never consolidated that loan their variable interest rate would have changed as follows from year to year.

As you can see the rate dropped 3 percentage points over the last year due to the poor market conditions. There is also a strong likelihood that 4.21 percent will come down even further this year. So while students who obtained a Stafford loan on or after July 1, 2006 are stuck with a 6 or 6.8 interest rate those with a variable rate are enjoying our economic swoons. Well, enjoying may not be the best verb choice, but they are certainly benefiting.

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