Posted Date:September 13, 2013
|Author:||Jeff Baker, Director, Policy Liaison and Implementation, Federal Student Aid|
Subject: Interest Rate Information on the Direct Loan Master Promissory Notes and TEACH Grant Agreement to Serve
In an August 9, 2013 Electronic Announcement posted to the Information for Financial Aid Professionals (IFAP) website, we provided information on changes to Direct Loan interest rates that were made by the Bipartisan Student Loan Certainty Act of 2013. As explained in that announcement, the new interest rates apply to Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans first disbursed on or after July 1, 2013. We have recently been asked to clarify whether Direct Loan borrowers who previously signed Master Promissory Notes (MPNs) that contain information about the interest rates that were in effect prior to July 1, 2013 must sign new MPNs to receive the new interest rates on loans first disbursed on or after July 1, 2013.
The Direct Loan Programs new interest rates, that were provided in an attachment to the August 9, 2013 Electronic Announcement, apply to any Direct Subsidized Loan, Direct Unsubsidized Loan, or Direct PLUS Loan for which the first disbursement is made on or after July 1, 2013, regardless of the interest rate information provided in the MPN that the borrower signed. We are currently in the process of revising and updating the Direct Loan Program's promissory notes to include information about the new interest rates and will provide information about the revised notes after they have been approved by the Office of Management and Budget. In the meantime, the current Direct Subsidized Loan/Direct Unsubsidized Loan MPN and Direct PLUS Loan MPN remain valid for use, and any loan made under the current version, or any earlier version, of either MPN will be subject to the applicable interest rate formula as described in the August 9, 2013 Electronic Announcement, if the loan's first disbursement date is on or after July 1, 2013.
In the August 9, 2013 Electronic Announcement we also reminded schools that if a TEACH Grant is converted to a Direct Unsubsidized Loan, interest is charged from the date the TEACH Grant was first disbursed. We further clarified that if a TEACH Grant is converted to a Direct Unsubsidized Loan, the interest rate that will apply after the conversion will be the interest rate that was in effect for Direct Unsubsidized Loans on the date the TEACH Grant was first disbursed. Although the current version of the TEACH Grant Agreement to Serve states that the interest rate on a Direct Unsubsidized Loan is 6.8%, if a TEACH Grant is converted to a Direct Unsubsidized Loan, the applicable interest rate will be the rate that was in effect for Direct Unsubsidized Loans on the date of the first TEACH Grant disbursement. We plan to revise the TEACH Grant Agreement to Serve in the near future to include updated information about the interest rate for Direct Unsubsidized Loans.