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New Interest Rates and Origination Fees for Direct Loans

June 14, 2018

Part of our commitment to keeping you informed is calling your attention to changes in the industry. In case you missed it, ED recently released new interest rates and origination fees for Direct Loans. We have the details of the announcements you need to stay in the loop.

Direct Loan Interest Rates for 2018-2019

In the May 18, 2018 Electronic Announcement, ED provided details for interest rates on Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans that are first disbursed on or after July 1, 2018 and before July 1, 2019. Rates are set according to a formula based on a U.S. Department of the Treasury auction of 10-year Treasury notes. Separate interest rates are established each year for loans for which the first disbursement is made on or after July 1 through the following June 30 of the following year.

On Wednesday, May 9, 2018, the Treasury Department held a 10-year Treasury note auction that resulted in a high yield of 2.995%. The following table shows the interest rates for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans first disbursed on or after July 1, 2018 and before July 1, 2019. The interest rates are fixed for the life of the loan.

Loan Type Borrower Type Index Add-On Fixed Interest Rate
10-Year Treasury Note
Direct Subsidized Loans and Direct Unsubsidized Loans Undergraduate Students 2.995% 2.05% 5.05%
Direct Unsubsidized Loans Graduate/Professional Students 2.995% 3.60% 6.60%
Direct PLUS Loans Graduate/Professional Students and Parents of Dependent Undergraduate Students 2.995% 4.60% 7.60%

Loan Origination Fees for Direct Loan Borrowers, 2018-2019

In the June 6, 2018 Electronic Announcement, ED announced loan origination fees for first disbursements of Direct Loans made on or after October 1, 2018. The terms of the sequester increase the loan fees charged to Direct Loan borrowers for Direct Subsidized/Direct Unsubsidized and Direct PLUS loans from their statutory rates of 1 percent and 4 percent, respectively.

The following chart shows the sequester-required loan fees for FY 18 and FY 19.

Direct Loan Fees for FY 18 and FY 19
Loan Type First Disbursed Loan Fee Percent Fee Example
Direct Subsidized and Direct Unsubsidized Loans FY 18: On or after October 1, 2017 and before October 1, 2018 1.066% $58.63 on a $5,500 loan
FY 19: On or after October 1, 2018 and before October 1, 2019 1.062% $58.41 on a $5,500 loan
Direct PLUS Loans (Parent and Grad/Prof Student) FY 18: On or after October 1, 2017 and before October 1, 2018 4.264% $426.40 on a $10,000 loan
FY 19: On or after October 1, 2018 and before October 1, 2019 4.248 $424.80 on a $10,000 loan
Loan fee calculations that result in more than two decimal places must be truncated (not rounded) to two digits after the decimal point (cents).

A loan fee percentage for a loan is determined by the date of the first disbursement of the loan. Any subsequent disbursements of that loan, even if made on or after the relevant October 1, have the same loan fee percentage that applied to the first disbursement of that loan.

important: Beginning on Monday, June 18, 2018, institutions may begin submitting Direct Loan origination records to COD where the first disbursement will be on or after October 1, 2018. These origination records must have the correct loan fees as provided in this announcement. Loan origination records previously submitted with an anticipated first disbursement on or after October 1, 2018 will be corrected by the COD system soon after June 18, 2018.

We hope that this is helpful and appreciate all you do to assist your borrowers.

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