Stafford Loan Interest Rate Reduction: Background and Issues Page: 1 of 6
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Order Code RS22568
Updated January 30, 2007
~. CRS Report for Congress
Stafford Loan Interest Rate Reduction:
Background and Issues
David P. Smole
Specialist in Social Legislation
Domestic Social Policy Division
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.
The increasing desirability of obtaining a postsecondary education, rising college
prices, and concerns about financing college costs have increased the visibility of federal
student aid programs. Of particular concern is the amount students borrow for college
and their resulting debt burden. Also, recently implemented changes to the FFEL and DL
programs have resulted in a new interest rate structure for Stafford Loans with loans
disbursed on or after July 1, 2006, carrying a fixed interest rate of 6.8%; whereas in prior
years, loans were disbursed with variable, annually adjusting interest rates. In the early
part of this decade, interest rates had dropped to historic lows, but recently have risen to
levels more consistent with historic norms. The combination of recent interest rate
changes, rising college prices, and concerns about student loan debt burden have put
student loans on the agenda of the 110th Congress.
In the 110th Congress, proposals are being considered to reduce interest rates on
student loans to make them less costly to borrowers. On January 17, 2007, the House
passed H.R. 5, which would incrementally reduce interest rates on subsidized Stafford
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Stafford Loan Interest Rate Reduction: Background and Issues, report, January 30, 2007; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc808160/m1/1/: accessed December 17, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.