Alexander: Interest Rates on New Student Loans Will Drop July 1st

Posted on May 10, 2019

Rate drop from 5.05% to 4.5% percent should affect nearly 12.5 million loans, saving students millions of dollars

WASHINGTON, May 10, 2019 — Senate education committee Chairman Lamar Alexander (R-Tenn.) today said “interest rates on new student loans will drop on July 1st.”

“This rate drop is a result of Congress working together in 2013 with President Obama to tie student loan rates to actual federal government borrowing costs,” Alexander continued.

The interest rate on undergraduate loans will be 4.5% for the 2019-2020 school year, down from 5.05% in the 2018-2019 school year. The interest rate on loans for graduate students and parents will be 7% for the 2019-2020 school year, down from 7.6% in the 2018-2019 school year.

Background:

Chairman Alexander, along with Senators Angus King (I-Maine), Richard Burr (R-N.C.), and Joe Manchin (D-W.V.), sponsored the Bipartisan Student Loan Certainty Act of 2013 that tied student loan interest rates to market rates.

Under the Bipartisan Student Loan Certainty Act signed into law in 2013, student loan interest rates are tied to the government’s 10-year borrowing cost – specifically the yield on the last auction of the U.S. Treasury 10-year Note held before June of each year. The rates for undergraduate loans are the 10-year Note plus 2.05 percentage points—an addition to cover costs of defaults, collections, deferments, forgiveness, and delinquency. The legislation capped undergraduate rates at 8.25 percent, so students will never have to pay more than 8.25 percent interest on their loans.

In February, Alexander outlined his priorities for updating the Higher Education Act this year at the American Enterprise Institute. On April 10, the education committee held a HEA reauthorization hearing to explore how to better hold colleges and universities accountable for ensuring their students are earning degrees worth their time and money. On April 2, the committee held a HEA reauthorization hearing to examine the process for responding to sexual assault on college campuses, and on March 12, the committee held a HEA reauthorization hearing on FAFSA simplification and reducing the burden of verification.

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