The Bipartisan Student Loan Certainty Act of 2013 changed
the formula for determining the interest rate for Direct Consolidation
Loans as follows:
Five steps to calculate the Weighted Average Interest Rate
Multiply each loan by its interest rate to obtain the "per loan weight factor."
Add the per loan weight factors together.
Add the loan amounts together.
Divide the "total per loan weight factor" by the total loan amount and then multiply by 100.
*Round the result of Step 4 to the nearest higher one-eighth of one percent if it is not already on an eighth of a percent.
As an incentive to encourage timely student loan repayments, all borrowers who consolidated eligible student loans into the Federal Direct Consolidation Loan Program between October 1, 2000, and September 30, 2001 received an immediate interest rate reduction of 0.8 percent. To keep this benefit beyond the initial 12-month period, borrowers must make the first 12 monthly payments on time. The 0.8 percent rate reduction will become permanent once these first 12 payments are made on time.
For example, if your Direct Consolidation Loan interest rate is 8.25 percent, your interest rate drops to 7.45 percent. If you make your first 12 payments on time, you keep that interest rate and could save more than $400 for every $10,000 borrowed over a standard 10-year term.
How Will the Lower Rate Affect Your Loan Before You Fulfill the 12-Payment Requirement?
You will not see a reduction in the amount of your monthly payment until after you fulfill the 12-payment requirement. Until then, the savings that result from the 0.8 percent interest rate reduction will be applied toward reducing the principal balance of your Direct Consolidation Loan.
How Will the Lower Rate Affect Your Loan After You Fulfill the 12-Payment Requirement?
After you successfully fulfill the 12-payment requirement, the 0.8 percent rate reduction will be applied permanently toward your interest rate. At this point, the savings that result from the lower interest rate will be applied toward reducing your monthly payment.
Please Contact Us for Additional Information
Website - See our list of Questions and Answers related to the Repayment Incentive Program.
Phone: Talk with a loan representative between 8 a.m. and 8 p.m., EST, Monday through Friday, at 1-800-557-7392 (TDD 1-800-557-7395).
Last Updated - March 2, 2014