Interest on Federal Loans

Interest on Federal Loans

Congress sets the interest that a lender can charge on federal loans, and most lenders do charge the maximum. Currently the maximum interest rate on new Perkins loans is 5 percent. On unsubsidized Stafford loans, the rate is 6.8 percent. For subsidized Stafford loans, the rate is 5.6 percent — the government pays the interest (dropping to 4.5 percent for 2010-11 and 3.4 percent for 2011-12). The lower rate is only for undergraduate students; graduate and professional students still pay 6.8 percent on both types of Stafford loans. On PLUS loans, borrowers pay 7.9 percent if they borrow through the direct loan program. Students should check these rates because they do change. The Education Department currently posts the maximum rates.
The government also imposes limits on how much money students may borrow under each type of loan program. As of July 1, 2008, the typical dependent Stafford borrower can take out $5,500 in the first year of college, $6,500 the second year and $7,500 in later years. The maximum amount an undergraduate can borrow through the Stafford loan program is $31,000. These loan limits are specified here.