On August 9, Pres­i­dent Oba­ma signed the Bipar­ti­san Stu­dent Loan Cer­tain­ty Act of 2013, which changes the for­mu­la for deter­min­ing fed­er­al stu­dent loan inter­est rates. The law comes after months of par­ti­san bick­er­ing, which cul­mi­nat­ed with the rate on sub­si­dized Stafford Loans dou­bling to 6.8% on July 1.

The new leg­is­la­tion replaces a pri­or sys­tem where Con­gress set the rates each year (some might argue arbi­trar­i­ly) and intro­duces a new mar­ket-based sys­tem that ties fed­er­al stu­dent loan inter­est rates to the gov­ern­men­t’s bor­row­ing costs. The leg­is­la­tion will apply retroac­tive­ly to stu­dent loans that orig­i­nat­ed July 1.

Under the new law, stu­dent loan inter­est rates will be tied to the 10-year Trea­sury note, plus an added amount. For this aca­d­e­m­ic year (July 1, 2013, through June 30, 2014), the new for­mu­la will result in a fixed rate of:

  • 3.8% for under­grad­u­ate stu­dents bor­row­ing sub­si­dized and unsub­si­dized Stafford Loans (capped at 8.25%)
  • 5.4% for grad­u­ate stu­dents bor­row­ing unsub­si­dized Stafford Loans (capped at 9.5%)
  • 6.4% for par­ents bor­row­ing PLUS Loans (capped at 10.5%)