Headlines triumph the Bipartisan Student Loan Certainty Act as an act of bipartisanship but leave out important details such as what the actual rates will be, who will be impacted and when the rates come into effect. President Obama is expected to sign the Act into law shortly. As compromises go, this is not a bad deal but is certainly not one to shout about from the rooftops. If you already have loans from previous years, your rate stays the same.

For those of you taking out a graduate Stafford and/or Grad PLUS loans this year, congratulations, Congress has reduced your rates. The rate applies retroactively from 1 July, 2013, so even if you have already requested loans for the fall, you will pay the lower rate.

Years                   2012       2013

Stafford (grad)  6.8%      5.4%

Grad PLUS           7.9%      6.4%

Each year, a new rate for that year’s loans will be calculated by adding the Treasury’s 10 year borrowing rate (2013 rate is 1.8%) to 3.6% for Stafford graduate loans and 4.6% for Grad PLUS loans. There are caps to limit how high the interest rate will go. 9.5% for Stafford loans and 10.5% for Grad PLUS loans. However, the Congressional Budget Office does not expect loans to reach that cap within the next decade.

For folks who already have loans, your rate stays the same. I am unhappy about this since I had hoped to save some dough on interest but alas, it was not to be. There is nothing you can do to lower your rate while in school except for paying down the interest. While your loans are deferred, which from the time you take them out in August until you graduate, interest builds up on the principle (amount you took out). It will also build during your grace period after graduation and at the end of the grace period, it will compound into your principle. If you can afford it, paying down some interest will save you some money and reduce the time you have to repay (about 14 months in my case if I pay off the entire amount, about 7k). If you are not a dependent, you can deduct up $2,500 from your taxes.

Fortunately, some of the dumber proposals were ignored such as allowing the rate to fluctuate up or down every year for all loans. Compromise also ignored some of the smarter proposals such lending to students using the same 0.75% rate that AIG and other bailed out banks received. To my knowledge, no one talked about letting students refinance their existing loans at lower rates which is unfortunate because that would save all borrowers a nice chunk of change.

For further questions, graduate students have Cynthia Roach in the Financial Aid office. She is very helpful and you can contact her here.