20 U.S.C. § 1077a — Applicable interest rates

(a) Rates must be consistent for the borrower's entire debt. For a loan covering the cost of instruction for any period of instruction that begins on or after January 1, 1981, the interest rate for a borrower must meet these rules: (1) The rate may not be more than 7 percent per year on the loan's unpaid principal balance if, on the date the borrower signs the note or other written proof of the loan, the borrower owes principal or interest on a loan made, insured, or guaranteed under this part whose interest rate is no more than 7 percent. (2) Except as paragraph (3) provides, the rate is 9 percent per year on the loan's unpaid principal balance if, on that signing date, the borrower does not owe principal or interest on any loan described in paragraph (1), or on any loan whose rate is set under paragraph (1). (3) The rate is 8 percent per year on the unpaid principal balance for a loan covering the cost of education for a period of enrollment that begins on or after the date that is 3 months after a determination under subsection (b), if, on the date the borrower signs the note or other written proof of the loan, the borrower does not owe principal or interest on any loan whose rate is set under paragraph (1) or (2). This section uses technical terms such as "unpaid principal balance," "bond equivalent rate," "Treasury bills," "constant maturity Treasury yield," "securities with a comparable maturity," "Federal Register," "principal balance," and "average daily principal balance." This section does not define those terms. (b) Reduction for new borrowers after Treasury-bill rates decline. If, for any 12-month period beginning on or after January 1, 1981, the Secretary, after consulting the Secretary of the Treasury, determines that the average bond-equivalent rate of the 91-day Treasury bills auctioned during that 12-month period is 9 percent or less, the interest rate for loans under this part is the rate in subsection (a)(3) for the borrowers described there. (c) Rates for supplemental student loans and parent loans. (1) General rule. Unless this subsection provides otherwise, the interest rate for a loan made under section 1078-1 or 1078-2 of this title on or after October 1, 1981, is 14 percent per year on the loan's unpaid principal balance. (2) Rate reduction after Treasury-bill rates decline. If, for any 12-month period beginning on or after October 1, 1981, the Secretary, after consulting the Secretary of the Treasury, determines that the average bond-equivalent rate of the 91-day Treasury bills auctioned during that period is 14 percent or less, the rate for a loan made under section 1078-1 or 1078-2 on or after the first day of the first month that begins after the determination is published is 12 percent per year on the loan's unpaid principal balance. (3) Rate increase after Treasury-bill rates rise. If, for any 12-month period beginning on or after the publication date of a determination under paragraph (2), the Secretary, after consulting the Secretary of the Treasury, determines that the average bond-equivalent rate of the 91-day Treasury bills auctioned during that period is more than 14 percent, the rate for a loan made under section 1078-1 or 1078-2 on or after the first day of the first month that begins after publication of that determination is 14 percent per year on the loan's unpaid principal balance. (4) Variable rates. (A) For a loan made under section 1078-1 or 1078-2 and disbursed on or after July 1, 1987, or a loan made under either section before that date and refinanced under section 1078-1(d) or 1078-2(d), the rate during each 12-month period from July 1 through June 30 is determined under subparagraph (B). The rate may not be more than 12 percent. (B) For each such 12-month period: (i) If the period begins on July 1 and ends on or before June 30, 2001, the rate is set on the preceding June 1. It equals the bond-equivalent rate of the 52-week Treasury bills auctioned at the last auction before that June 1, plus 3.25 percentage points. (ii) If the period begins on July 1, 2001, or on July 1 of a later year, the rate is set on the preceding June 26. It equals the weekly average 1-year constant-maturity Treasury yield published by the Board of Governors of the Federal Reserve System for the last calendar week ending on or before that June 26, plus 3.25 percentage points. (C) After consulting the Secretary of the Treasury, the Secretary must set the rate under subparagraph (B) and publish it in the Federal Register as soon as practicable after setting it. (D) Despite subparagraph (A): (i) For a loan under section 1078-1 whose first disbursement is made on or after October 1, 1992, subparagraph (B) is applied by using 3.1 percentage points instead of 3.25 percentage points, and the rate may not be more than 11 percent. (ii) For a loan under section 1078-2 whose first disbursement is made on or after October 1, 1992, subparagraph (B) is applied by using 3.1 percentage points instead of 3.25 percentage points, and the rate may not be more than 10 percent. (E) Despite subparagraphs (A) and (D), for a loan under section 1078-2 whose first disbursement is made on or after July 1, 1994, subparagraph (B) is applied by using 3.1 percentage points instead of 3.25 percentage points, and the rate may not be more than 9 percent. (d) Rates for new borrowers after July 1, 1988. Despite subsections (a) and (b), this subsection applies to a loan other than one made under sections 1078-1, 1078-2, or 1078-3 of this title. The loan must cover the cost of instruction for a period of enrollment beginning on or after July 1, 1988. The borrower must have no outstanding principal or interest on any loan made, insured, or guaranteed under this part when the borrower signs the note or other written proof of the loan. The rate is: (1) 8 percent per year on the unpaid principal balance from the loan's disbursement date through the end of the fourth year after repayment begins; and (2) 10 percent per year on the unpaid principal balance for the rest of the repayment period. (e) Rates for new borrowers after October 1, 1992. (1) General rule. Despite subsections (a), (b), and (d), this paragraph applies to a loan other than one made under sections 1078-1, 1078-2, or 1078-3 of this title. The first disbursement must be made on or after October 1, 1992. When the borrower signs the note or other written proof of the loan, the borrower must have no outstanding principal or interest on any loan made, insured, or guaranteed under section 1077, 1078, or 1078-8 of this title. During each 12-month period from July 1 through June 30, the rate is set on the preceding June 1. It equals the bond-equivalent rate of the 91-day Treasury bills auctioned at the last auction before that June 1, plus 3.10 percentage points. The rate may not be more than 9 percent. (2) Consultation. After consulting the Secretary of the Treasury, the Secretary must set the rate under paragraph (1) and publish it in the Federal Register as soon as practicable after setting it. (f) Rates for new loans after July 1, 1994. (1) General rule. Despite subsections (a), (b), (d), and (e), this paragraph applies to a loan made, insured, or guaranteed under this part, other than a loan under section 1078-2 or 1078-3 of this title, whose first disbursement is made on or after July 1, 1994. During each 12-month period from July 1 through June 30, the rate is set on the preceding June 1. It equals the bond-equivalent rate of the 91-day Treasury bills auctioned at the last auction before that June 1, plus 3.10 percentage points. The rate may not be more than 8.25 percent on the unpaid principal balance. (2) Consultation. After consulting the Secretary of the Treasury, the Secretary must set the rate under paragraph (1) and publish it in the Federal Register as soon as practicable after setting it. (g) Rules for school and grace periods. (1) General rule. Despite subsection (f), and subject to subsection (h), this subsection applies to a loan under section 1078 or 1078-8 of this title whose first disbursement is made on or after July 1, 1995. The rate on interest that accrues before repayment begins, or during a period when the principal does not have to be paid because of a provision described in section 1078(b)(1)(M) or 1077(a)(2)(C) of this title, may not be more than the rate determined under paragraph (2). This applies whether or not the principal is actually paid during that period. (2) Rate determination. During each 12-month period from July 1 through June 30, the rate is set on the preceding June 1. It equals the bond-equivalent rate of the 91-day Treasury bills auctioned at the last auction before that June 1, plus 2.5 percentage points. The rate may not be more than 8.25 percent. (3) Consultation. After consulting the Secretary of the Treasury, the Secretary must set the rate under this subsection and publish it in the Federal Register as soon as practicable after setting it. (h) Rates for new loans after July 1, 1998. (1) General rule. Despite subsections (a), (b), (d), (e), (f), and (g), this paragraph applies to a loan made, insured, or guaranteed under this part, other than a loan under sections 1078-2 or 1078-3 of this title, whose first disbursement is made on or after July 1, 1998. During each 12-month period from July 1 through June 30, the rate is set on the preceding June 1. It equals the bond-equivalent rate of securities with a comparable maturity, as established by the Secretary, plus 1.0 percentage point. The rate may not be more than 8.25 percent. (2) Rates for new PLUS loans after July 1, 1998. Despite subsections (a), (b), (d), (e), (f), and (g), for a loan under section 1078-2 whose first disbursement is made on or after July 1, 1998, paragraph (1) applies with these changes: (A) In subparagraph (B), use 2.1 percentage points instead of 1.0 percentage point. (B) After subparagraph (B), use a maximum rate of 9.0 percent instead of 8.25 percent. (3) Consultation. After consulting the Secretary of the Treasury, the Secretary must set the rate under this subsection and publish it in the Federal Register as soon as practicable after setting it. (i) Treatment of excess interest on new-borrower accounts when Treasury-bill rates decline. (1) Excess interest on 10-percent loans. If, at the end of a calendar quarter, a loan has a 10-percent rate under subsection (d), and the average bond-equivalent rate of the 91-day Treasury bills auctioned during that quarter plus 3.25 percentage points is less than 10 percent, the borrower's account must be adjusted as follows: (A) Excess interest is calculated under paragraph (2). (B) During a period when a student qualifies to have the Government pay interest for the student under section 1078(a) of this title, the excess interest is credited to the Government. During any other period, it is credited toward reducing principal as paragraph (5) provides. (2) Amount of adjustment for 10-percent loans. For a quarter, calculate the adjustment this way: (A) Start with 10 percent. Subtract the sum of the quarter's average bond-equivalent rate of the 91-day Treasury bills and 3.25 percentage points. (B) Multiply that result by the loan's average daily principal balance during the quarter, leaving out unearned interest added to principal. (C) Divide the result by 4. (3) Excess interest on loans after the 1992 amendments for borrowers with outstanding balances. If a loan was made on or after July 23, 1992, to a borrower who, when signing the note or other written proof of the loan, owed principal or interest on another loan made, insured, or guaranteed under this part, and the quarter's average bond-equivalent rate of the 91-day Treasury bills plus 3.1 percentage points is less than the applicable rate, an adjustment must be made as follows: (A) Excess interest is calculated under paragraph (4). (B) During a period when a student qualifies to have the Government pay interest for the student under section 1078(a) of this title, the excess interest is credited to the Government. During any other period, it is credited toward reducing principal as paragraph (5) provides. (4) Amount of adjustment. For a quarter, calculate the adjustment this way: (A) Start with the applicable interest rate. Subtract the sum of the quarter's average bond-equivalent rate of the 91-day Treasury bills and 3.1 percentage points. (B) Multiply that result by the loan's average daily principal balance during the quarter, leaving out unearned interest added to principal. (C) Divide the result by 4. (5) Yearly interest adjustment and eligibility for a borrower credit. The loan holder must, on the last day of the calendar year containing the quarter, credit every adjustment calculated under paragraphs (2) and (4) to the borrower's loan account to reduce its principal balance. The holder may not make that credit to a borrower who, on the last day of the calendar year, is more than 30 days late on a required loan payment. Instead, the excess interest must be calculated and credited to the Secretary. A credit that must be made to a borrower's account must take effect no later than 30 days after the last day of that calendar year. The section does not require a refund of any loan repayment. At the lender's option, the adjustment may be given to the borrower by lowering each periodic payment, lowering the number of payments, or lowering the final payment. This paragraph does not require the lender to make additional disclosures under section 1083(b) of this title. (6) Publication of the Treasury-bill rate. To let loan holders make these calculations and adjustments, the Secretary must publish, for each calendar quarter beginning with the quarter that began July 1, 1987, a notice stating the average bond-equivalent rate of the 91-day Treasury bills auctioned during that quarter. The notice must be published no later than 7 days after the quarter ends. (7) Conversion to a variable rate. (A) Subject to subparagraphs (C) and (D), a lender or holder must convert to a variable rate the rate on a loan made under this part that is covered by this subsection. The conversion must occur no later than January 1, 1995. Starting on the conversion date, for each 12-month period from July 1 through June 30, the Secretary sets the rate on the preceding June 1. The rate equals the 91-day Treasury bill bond-equivalent rate at the last auction before that June 1, plus 3.25 percentage points for loans described in paragraph (1), or 3.10 percentage points for loans described in paragraph (3). (B) For a period before the conversion, and subject to subparagraphs (C) and (D), the lender or holder must convert the loan's rate to a variable rate. The rate for that period is reset every quarter. For each quarter or part of a quarter, it equals the average bond-equivalent rate of the 91-day Treasury bills auctioned during the preceding 3 months, plus 3.25 percentage points for loans described in paragraph (1), or 3.10 percentage points for loans described in paragraph (3). The excess-interest rebate from this conversion must be given to the borrower as paragraph (5) provides for paragraph (1) loans, or to the Government and borrower as paragraph (3) provides. (C) The lender or holder must finish the conversion by January 1, 1995. At least 30 days before conversion, it must tell the borrower that the loan will become variable-rate and describe the rate. The notice must say that the rate will be calculated under this paragraph and will give the borrower a benefit substantially equivalent to the adjustment otherwise provided by this subsection. If the disclosure under section 1083(b) of this title has not already been made, this notice may be included in that disclosure. (D) The rate on a loan converted under this paragraph may not be higher than the maximum rate that applied before conversion. (E) A loan whose rate is converted under subparagraph (A) or (B) is not subject to any other provision of this subsection. (j) Rates for new loans between July 1, 1998, and October 1, 1998. (1) General rule. Despite subsection (h), and subject to paragraph (2), this paragraph applies to a loan made, insured, or guaranteed under this part, other than a loan under section 1078-2 or 1078-3 of this title, whose first disbursement is made on or after July 1, 1998, and before October 1, 1998. During each 12-month period from July 1 through June 30, the rate is set on the preceding June 1. It equals the bond-equivalent rate of the 91-day Treasury bills auctioned at the last auction before that June 1, plus 2.3 percentage points. The rate may not be more than 8.25 percent. (2) School and grace periods. Despite subsection (h), for such a loan, the rate on interest accruing before repayment begins, or during a period when principal does not have to be paid because of a provision described in section 1078(b)(1)(M) or 1077(a)(2)(C), is determined under paragraph (1) by using 1.7 percentage points instead of 2.3 percentage points. This applies whether or not the principal is actually paid. (3) PLUS loans. Despite subsection (h), for a loan under section 1078-2 whose first disbursement is made on or after July 1, 1998, and before October 1, 1998, the rate during each 12-month period from July 1 through June 30 is set on the preceding June 1. It is the lower of these two amounts: (A)(i) the bond-equivalent rate of the 91-day Treasury bills auctioned at the last auction before that June 1, plus (ii) 3.1 percentage points; or (B) 9.0 percent. (4) Consultation. After consulting the Secretary of the Treasury, the Secretary must set the rate under this subsection and publish it in the Federal Register as soon as practicable after setting it. (k) Rates for new loans on or after October 1, 1998, and before July 1, 2006. (1) General rule. Despite subsection (h), and subject to paragraph (2), this paragraph applies to a loan made, insured, or guaranteed under this part, other than a loan under section 1078-2 or 1078-3 of this title, whose first disbursement is made on or after October 1, 1998, and before July 1, 2006. During each 12-month period from July 1 through June 30, the rate is set on the preceding June 1. It equals the bond-equivalent rate of the 91-day Treasury bills auctioned at the last auction before that June 1, plus 2.3 percentage points. The rate may not be more than 8.25 percent. (2) School and grace periods. Despite subsection (h), for such a loan, the rate on interest accruing before repayment begins, or during a period when principal does not have to be paid because of a provision described in section 1077(a)(2)(C) or 1078(b)(1)(M), is determined under paragraph (1) by using 1.7 percentage points instead of 2.3 percentage points. This applies whether or not the principal is actually paid. (3) PLUS loans. Despite subsection (h), for a loan under section 1078-2 whose first disbursement is made on or after October 1, 1998, and before July 1, 2006, paragraph (1) applies with these changes: use 3.1 percentage points instead of 2.3 percentage points, and use 9.0 percent instead of 8.25 percent as the maximum rate. (4) Consolidation loans. For a consolidation loan under section 1078-3 whose application reaches an eligible lender on or after October 1, 1998, and before July 1, 2006, the annual rate on the unpaid principal balance is the lower of these amounts: (A) the weighted average of the interest rates on the consolidated loans, rounded up to the nearest one-eighth of 1 percent; or (B) 8.25 percent. (5) Consultation. After consulting the Secretary of the Treasury, the Secretary must set the rate under this subsection and publish it in the Federal Register as soon as practicable after setting it. (l) Rates for new loans on or after July 1, 2006, and before July 1, 2010. (1) General rule. Despite subsection (h), for a loan made, insured, or guaranteed under this part, other than a loan under section 1078-2 or 1078-3, whose first disbursement is made on or after July 1, 2006, and before July 1, 2010, the rate is 6.8 percent per year on the unpaid principal balance. (2) PLUS loans. Despite subsection (h), for a loan under section 1078-2 whose first disbursement is made on or after July 1, 2006, and before July 1, 2010, the rate is 8.5 percent per year on the unpaid principal balance. (3) Consolidation loans. For a consolidation loan under section 1078-3 whose application reaches an eligible lender on or after July 1, 2006, and that was disbursed before July 1, 2010, the annual rate on the unpaid principal balance is the lower of these amounts: (A) the weighted average of the interest rates on the consolidated loans, rounded up to the nearest one-eighth of 1 percent; or (B) 8.25 percent. (4) Lower rates for subsidized undergraduate loans. Despite subsection (h) and paragraph (1), this paragraph applies to a loan to an undergraduate student made, insured, or guaranteed under this part, other than a loan under section 1078-2, 1078-3, or 1078-8, whose first disbursement is made on or after July 1, 2006, and before July 1, 2010. The rates are: (A) 6.8 percent per year for a first disbursement made on or after July 1, 2006, and before July 1, 2008. (B) 6.0 percent per year for a first disbursement made on or after July 1, 2008, and before July 1, 2009. (C) 5.6 percent per year for a first disbursement made on or after July 1, 2009, and before July 1, 2010. Each rate applies to the loan's unpaid principal balance. (m) Lower rates are allowed. Nothing in this section or section 1078-3 of this title prevents a lender from charging a borrower a rate below the rate that applies under this part. (n) Definitions. For subsections (a) and (d): (1) A "period of instruction" may, at the lender's choice, be an academic year, semester, trimester, quarter, or another academic period. It may also be the period for which the loan is made, as the institution of higher education determines. (2) A "period of enrollment" is the period for which the loan is made, as the institution of higher education determines. It must match an academic term, such as an academic year, semester, trimester, quarter, or another academic period as that institution defines it.