How are interest rates determined?

1. Loans, disbursed under the William D. Ford Federal Direct Loan Program, have either a fixed or a variable interest rate, depending on when the loan was first disbursed
2. All Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans first disbursed on or after July 1, 2006 have a fixed interest rate for the life of the loan.
   1. The interest rate for Direct Subsidized Loans for graduate borrowers and Unsubsidized Loans for graduate and undergraduate borrowers first disbursed on or after July 1, 2006 is 6.8%.
   2. Interest rates for Direct Subsidized Loans for undergraduate borrowers have a fixed interest rate as follows:
      • If first disbursed on or after July 1, 2006 and prior to July 1, 2008 - 6.8%.
      • If first disbursed on or after July 1, 2008 and prior to July 1, 2009 - 6.0%.
      • If first disbursed on or after July 1, 2009 and prior to July 1, 2010 - 5.6%.
      • If first disbursed on or after July 1, 2010 and prior to July 1, 2011 - 4.5%.
      • If first disbursed on or after July 1, 2011 and prior to July 1, 2012 - 3.4%.
      • If first disbursed on or after July 1, 2012 - 6.8%.
   3. The interest rate for Direct PLUS loans first disbursed on or after July 1, 2006 is 7.9%.
3. All Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans first disbursed before July 1, 2006 have a variable interest rate. The interest rate on these variable rate loans is changed on July 1st of each year.
   1. The interest rate on Direct Subsidized and Direct Unsubsidized Loans is determined using the 91-day Treasury bill rate that was auctioned before June 1st and adding a certain fixed percentage to it.
   2. The interest rate on Direct PLUS Loans is determined by using either the weekly average of the 1-year constant maturity yield published by the Federal Reserve on or before June 26 or the 91-day Treasury bill rate that was auctioned before June 1st.
   • Direct PLUS Loans that were disbursed before July 1, 1998 use the weekly average of the 1-year constant maturity yield.
   • Direct PLUS Loans that were disbursed on or after July 1, 1998 use the 91-day Treasury bill rate.
4. Consolidation Loans disbursed under the Direct Loan Program can have either a fixed or variable interest rate depending on when the application was received.
5. The amount of interest that accrues on your loan from month to month is determined by using what is called the Simple Daily Interest formula. This method is a simple formula that multiplies your loan balance by the number of days since the last payment times the Interest Rate Factor. The Interest Rate Factor is determined by dividing your interest rate by the number of days in a year (365.25).