David P. Smole
Specialist in Education Policy
Subsidized Stafford Loans are one of the types of federal student loans made available through the William D. Ford Federal Direct Loan (DL) program, authorized under Title IV, Part D of the Higher Education Act of 1965 (HEA). These loans are only available to students who demonstrate financial need. Since July 1, 2012, Subsidized Stafford Loans are now available exclusively to undergraduate students. The federal government “subsidizes” these loans by relieving the borrower of the requirement to pay the interest that accrues while he or she is in school and during other authorized periods.
Fixed interest rates apply to all Subsidized Stafford Loans made on or after July 1, 2006. During the period from July 1, 2006, through June 30, 2008, Subsidized Stafford Loans to undergraduate students were made with a fixed interest rate of 6.8%. The College Cost Reduction and Access Act of 2007 (CCRAA; P.L. 110-84) set lower interest rates on Subsidized Stafford Loans made to undergraduate students during the period from July 1, 2008, through June 30, 2012. Different, incrementally lower fixed interest rates were set for loans made for each award year (AY) during this period. A fixed interest rate of 3.4% applies to Subsidized Stafford Loans made to undergraduate students during the final award year affected by the CCRAA amendments, July 1, 2011, through June 30, 2012 (AY2011-2012).
The interest rate reductions made by the CCRAA did not apply to Subsidized Stafford Loans that would be made on or after July 1, 2012. These loans were scheduled to be made with a fixed interest rate of 6.8%. In the 112th Congress, the Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141) was enacted which set a fixed interest rate of 3.4% for Subsidized Stafford Loans made during the one-year period from July 1, 2012, through June 30, 2013 (AY2012-2013). The 3.4% interest rate set by MAP-21 applies only to loans made for AY2012- 2013. Under current law, all Subsidized Stafford Loans made on or after July 1, 2013, will have a fixed interest rate of 6.8%.
In the 112th Congress, there was broad support for extending, through June 30, 2013, the period during which Subsidized Stafford Loans would be made with a 3.4% interest rate. However, the process of identifying and agreeing on offsets to the resulting increase in mandatory spending proved difficult during a period in which the federal government is facing budgetary challenges. Whether to allow the 6.8% interest rate scheduled to apply to loans disbursed on or after July 1, 2013, to take effect or to enact legislation that would establish a different interest rate or interest rate formula is an issue that may be considered during the remainder of the 112th Congress or in the 113th Congress.
Date of Report: August 23, 2012
Number of Pages: 13
Order Number: R42515
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