Stafford Loan Interest Rate Reduction: Background and Issues

Publication Date: January 2007

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Education

Type:

Abstract:

Subsidized and unsubsidized Stafford Loans are the primary sources of federal loan aid available to assist students finance the costs of a postsecondary education. These loans are made available under both the Federal Family Education Loan (FFEL) program and the William D. Ford Direct Loan (DL) program. Through these programs, students may borrow loans with terms and conditions that are generally more favorable than loans from private lenders. Effective July 1, 2006, the interest rate on new Stafford Loans is fixed at 6.8%. For loans made on or after October 1, 1992, and prior to July 1, 2006, interest rates are variable and adjust annually. H.R. 5, as passed by the House, would reduce interest rates on subsidized Stafford Loans that are disbursed to undergraduate students from July 1, 2007, to December 31, 2011. This report provides a brief overview of selected terms and conditions of Stafford Loans, characteristics of borrowers, and a description of how reduced rates proposed under H.R. 5 would compare with current terms and conditions.