§ 1077a. Applicable interest rates
(a)
Rates to be consistent for borrower’s entire debt
With respect to any loan to cover the cost of instruction for any period of instruction beginning on or after January 1, 1981, the rate of interest applicable to any borrower shall—
(1)
not exceed 7 percent per year on the unpaid principal balance of the loan in the case of any borrower who, on the date of entering into the note or other written evidence of that loan, has an outstanding balance of principal or interest on any loan made, insured, or guaranteed under this part, for which the interest rate does not exceed 7 percent;
(2)
except as provided in paragraph (3), be 9 percent per year on the unpaid principal balance of the loan in the case of any borrower who, on the date of entering into the note or other written evidence of that loan, has no outstanding balance of principal or interest on any loan described in paragraph (1) or any loan for which the interest rate is determined under paragraph (1); or
(3)
be 8 percent per year on the unpaid principal balance of the loan for a loan to cover the cost of education for any period of enrollment beginning on or after a date which is 3 months after a determination made under subsection (b) of this section in the case of any borrower who, on the date of entering into the note or other written evidence of the loan, has no outstanding balance of principal or interest on any loan for which the interest rate is determined under paragraph (1) or (2) of this subsection.
(b)
Reduction for new borrowers after decline in Treasury bill rates
If for any 12-month period beginning on or after January 1, 1981, the Secretary, after consultation with the Secretary of the Treasury, determines that the average of the bond equivalent rates of 91-day Treasury bills auctioned for such 12-month period is equal to or less than 9 percent, the interest rate for loans under this part shall be the rate prescribed in subsection (a)(3) of this section for borrowers described in such subsection.
(c)
Rates for supplemental loans for students and loans for parents
(2)
Reduction of rate after decline in Treasury bill rates
If for any 12-month period beginning on or after October 1, 1981, the Secretary, after consultation with the Secretary of the Treasury, determines that the average of the bond equivalent rates of 91-day Treasury bills auctioned for such 12-month period is equal to or less than 14 percent, the applicable rate of interest for loans made pursuant to section
1078–1 [1] or
1078–2 of this title on and after the first day of the first month beginning after the date of publication of such determination shall be 12 percent per year on the unpaid principal balance of the loan.
(3)
Increase of rate after increase in Treasury bill rates
If for any 12-month period beginning on or after the date of publication of a determination under paragraph (2), the Secretary, after consultation with the Secretary of the Treasury, determines that the average of the bond equivalent rates of 91-day Treasury bills auctioned for such 12-month period exceeds 14 percent, the applicable rate of interest for loans made pursuant to section
1078–1 [1] or
1078–2 of this title on and after the first day of the first month beginning after the date of publication of that determination under this paragraph shall be 14 percent per year on the unpaid principal balance of the loan.
(4)
Availability of variable rates
(A)
For any loan made pursuant to section
1078–1 [1] or
1078–2 of this title and disbursed on or after July 1, 1987, or any loan made pursuant to such section prior to such date that is refinanced pursuant to section
1078–1
(d) [1] or
1078–2
(d) of this title, the applicable rate of interest during any 12-month period beginning on July 1 and ending on June 30 shall be determined under subparagraph (B), except that such rate shall not exceed 12 percent.
(B)
(i)
For any 12-month period beginning on July 1 and ending on or before June 30, 2001, the rate determined under this subparagraph is determined on the preceding June 1 and is equal to—
(ii)
For any 12-month period beginning on July 1 of 2001 or any succeeding year, the rate determined under this subparagraph is determined on the preceding June 26 and is equal to—
(C)
The Secretary shall determine the applicable rate of interest under subparagraph (B) after consultation with the Secretary of the Treasury and shall publish such rate in the Federal Register as soon as practicable after the date of determination.
(D)
Notwithstanding subparagraph (A)—
(i)
for any loan made pursuant to section
1078–1 [1] of this title for which the first disbursement is made on or after October 1, 1992—
(ii)
for any loan made pursuant to section
1078–2 of this title for which the first disbursement is made on or after October 1, 1992—
(E)
Notwithstanding subparagraphs (A) and (D) for any loan made pursuant to section
1078–2 of this title for which the first disbursement is made on or after July 1, 1994—
(d)
Interest rates for new borrowers after July 1, 1988
Notwithstanding subsections (a) and (b) of this section, with respect to any loan (other than a loan made pursuant to sections
1078–1,[1]
1078–2, and
1078–3 of this title) to cover the cost of instruction for any period of enrollment beginning on or after July 1, 1988, to any borrower who, on the date of entering into the note or other written evidence of the loan, has no outstanding balance of principal or interest on any loan made, insured, or guaranteed under this part, the applicable rate of interest shall be—
(e)
Interest rates for new borrowers after October 1, 1992
(1)
In general
Notwithstanding subsections (a), (b), and (d) of this section, with respect to any loan (other than a loan made pursuant to sections
1078–1,[2]
1078–2 and
1078–3 of this title) for which the first disbursement is made on or after October 1, 1992, to any borrower who, on the date of entering into the note or other written evidence of the loan, has no outstanding balance of principal or interest on any loan made, insured, or guaranteed under section
1077,
1078, or
1078–8 of this title, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A)
the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
except that such rate shall not exceed 9 percent.
(f)
Interest rates for new loans after July 1, 1994
(1)
In general
Notwithstanding subsections (a), (b), (d), and (e) of this section, with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to section
1078–2 or
1078–3 of this title) for which the first disbursement is made on or after July 1, 1994, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A)
the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
except that such rate shall not exceed 8.25 percent.
(g)
In school and grace period rules
(1)
General rule
Notwithstanding the provisions of subsection (f) of this section, but subject to subsection (h) of this section, with respect to any loan under section
1078 or
1078–8 of this title for which the first disbursement is made on or after July 1, 1995, the applicable rate of interest for interest which accrues—
(B)
during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section
1078
(b)(1)(M) or
1077
(a)(2)(C) of this title,
shall not exceed the rate determined under paragraph (2).
(2)
Rate determination
For purposes of paragraph (1), the rate determined under this paragraph shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A)
the bond equivalent rate of 91-day Treasury bills auctioned at the final auction prior to such June 1; plus
except that such rate shall not exceed 8.25 percent.
(h)
Interest rates for new loans after July 1, 1998
(1)
In general
Notwithstanding subsections (a), (b), (d), (e), (f), and (g) of this section, with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to sections
1078–2 and
1078–3 of this title) for which the first disbursement is made on or after July 1, 1998, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A)
the bond equivalent rate of the securities with a comparable maturity as established by the Secretary; plus
except that such rate shall not exceed 8.25 percent.
(2)
Interest rates for new PLUS loans after July 1, 1998
Notwithstanding subsections (a), (b), (d), (e), (f), and (g) of this section, with respect to any loan made under section
1078–2 of this title for which the first disbursement is made on or after July 1, 1998, paragraph (1) shall be applied—
(i)
Treatment of excess interest payments on new borrower accounts resulting from decline in Treasury bill rates
(1)
Excess interest on 10 percent loans
If, with respect to a loan for which the applicable interest rate is 10 percent under subsection (d) of this section at the close of any calendar quarter, the sum of the average of the bond equivalent rates of 91-day Treasury bills auctioned for that quarter and 3.25 percent is less than 10 percent, then an adjustment shall be made to a borrower’s account—
(A)
by calculating excess interest in the amount computed under paragraph (2) of this subsection; and
(2)
Amount of adjustment for 10 percent loans
The amount of any adjustment of interest on a loan to be made under this subsection for any quarter shall be equal to—
(A)
10 percent minus the sum of
(i)
the average of the bond equivalent rates of 91-day Treasury bills auctioned for such calendar quarter, and
(3)
Excess interest on loans after 1992 amendments, to borrowers with outstanding balances
If, with respect to a loan made on or after July 23, 1992, to a borrower, who on the date of entering into the note or other written evidence of the loan, has an outstanding balance of principal or interest on any other loan made, insured, or guaranteed under this part, the sum of the average of the bond equivalent rates of 91-day Treasury bills auctioned for that quarter and 3.1 percent is less than the applicable interest rate, then an adjustment shall be made—
(A)
by calculating excess interest in the amount computed under paragraph (4) of this subsection; and
(4)
Amount of adjustment
The amount of any adjustment of interest on a loan to be made under this subsection for any quarter shall be equal to—
(A)
the applicable interest rate minus the sum of
(i)
the average of the bond equivalent rates of 91-day Treasury bills auctioned for such calendar quarter, and
(5)
Annual adjustment of interest and borrower eligibility for credit
Any adjustment amount computed pursuant to paragraphs (2) and (4) of this subsection for any quarter shall be credited, by the holder of the loan on the last day of the calendar year in which such quarter falls, to the loan account of the borrower so as to reduce the principal balance of such account. No such credit shall be made to the loan account of a borrower who on the last day of the calendar year is delinquent for more than 30 days in making a required payment on the loan, but the excess interest shall be calculated and credited to the Secretary. Any credit which is to be made to a borrower’s account pursuant to this subsection shall be made effective commencing no later than 30 days following the last day of the calendar year in which the quarter falls for which the credit is being made. Nothing in this subsection shall be construed to require refunding any repayment of a loan. At the option of the lender, the amount of such adjustment may be distributed to the borrower either by reduction in the amount of the periodic payment on loan, by reducing the number of payments that shall be made with respect to the loan, or by reducing the amount of the final payment of the loan. Nothing in this paragraph shall be construed to require the lender to make additional disclosures pursuant to section
1083
(b) of this title.
(6)
Publication of Treasury bill rate
For the purpose of enabling holders of loans to make the determinations and adjustments provided for in this subsection, the Secretary shall for each calendar quarter commencing with the quarter beginning on July 1, 1987, publish a notice of the average of the bond equivalent rates of 91-day Treasury bills auctioned for such quarter. Such notice shall be published not later than 7 days after the end of the quarter to which the notice relates.
(7)
Conversion to variable rate
(A)
Subject to subparagraphs (C) and (D), a lender or holder shall convert the interest rate on a loan that is made pursuant to this part and is subject to the provisions of this subsection to a variable rate. Such conversion shall occur not later than January 1, 1995, and, commencing on the date of conversion, the applicable interest rate for each 12-month period beginning on July 1 and ending on June 30 shall be determined by the Secretary on the June 1 preceding each such 12-month period and be equal to the sum of
(i)
the bond equivalent rate of the 91-day Treasury bills auctioned at the final auction prior to such June 1; and
(ii)
3.25 percent in the case of loans described in paragraph (1), or 3.10 percent in the case of loans described in paragraph (3).
(B)
In connection with the conversion specified in subparagraph (A) for any period prior to such conversion, and subject to paragraphs (C) and (D), a lender or holder shall convert the interest rate to a variable rate on a loan that is made pursuant to this part and is subject to the provisions of this subsection to a variable rate. The interest rates for such period shall be reset on a quarterly basis and the applicable interest rate for any quarter or portion thereof shall equal the sum of
(i)
the average of the bond equivalent rates of 91-Treasury bills auctioned for the preceding 3-month period, and
(ii)
3.25 percent in the case of loans described in paragraph (1) or 3.10 percent in the case of loans described in paragraph (3). The rebate of excess interest derived through this conversion shall be provided to the borrower as specified in paragraph (5) for loans described in paragraph (1) or to the Government and borrower as specified in paragraph (3).
(C)
A lender or holder of a loan being converted pursuant to this paragraph shall complete such conversion on or before January 1, 1995. The lender or holder shall notify the borrower that the loan shall be converted to a variable interest rate and provide a description of the rate to the borrower not later than 30 days prior to the conversion. The notice shall advise the borrower that such rate shall be calculated in accordance with the procedures set forth in this paragraph and shall provide the borrower with a substantially equivalent benefit as the adjustment otherwise provided for under this subsection. Such notice may be incorporated into the disclosure required under section
1083
(b) of this title if such disclosure has not been previously made.
(j)
Interest rates for new loans between July 1, 1998 and October 1, 1998
(1)
In general
Notwithstanding subsection (h) of this section, but subject to paragraph (2), with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to section
1078–2 or
1078–3 of this title) for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A)
the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
except that such rate shall not exceed 8.25 percent.
(2)
In school and grace period rules
Notwithstanding subsection (h) of this section, with respect to any loan under this part (other than a loan made pursuant to section
1078–2 or
1078–3 of this title) for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, the applicable rate of interest for interest which accrues—
(B)
during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section
1078
(b)(1)(M) or
1077
(a)(2)(C) of this title,
shall be determined under paragraph (1) by substituting “1.7 percent” for “2.3 percent”.
(3)
PLUS loans
Notwithstanding subsection (h) of this section, with respect to any loan under section
1078–2 of this title for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to the lesser of—
(k)
Interest rates for new loans on or after October 1, 1998, and before July 1, 2006
(1)
In general
Notwithstanding subsection (h) of this section and subject to paragraph (2) of this subsection, with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to section
1078–2 or
1078–3 of this title) for which the first disbursement is made on or after October 1, 1998, and before July 1, 2006, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A)
the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
except that such rate shall not exceed 8.25 percent.
(2)
In school and grace period rules
Notwithstanding subsection (h) of this section, with respect to any loan under this part (other than a loan made pursuant to section
1078–2 or
1078–3 of this title) for which the first disbursement is made on or after October 1, 1998, and before July 1, 2006, the applicable rate of interest for interest which accrues—
(B)
during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section
1077
(a)(2)(C) or
1078
(b)(1)(M) of this title,
shall be determined under paragraph (1) by substituting “1.7 percent” for “2.3 percent”.
(3)
PLUS loans
Notwithstanding subsection (h) of this section, with respect to any loan under section
1078–2 of this title for which the first disbursement is made on or after October 1, 1998, and before July 1, 2006, the applicable rate of interest shall be determined under paragraph (1)—
(4)
Consolidation loans
With respect to any consolidation loan under section
1078–3 of this title for which the application is received by an eligible lender on or after October 1, 1998, and before July 1, 2006, the applicable rate of interest shall be at an annual rate on the unpaid principal balance of the loan that is equal to the lesser of—
(l)
Interest rates for new loans on or after July 1, 2006
(1)
In general
Notwithstanding subsection (h) of this section, with respect to any loan made, insured, or guaranteed under this part (other than a loan made pursuant to section
1078–2 or
1078–3 of this title) for which the first disbursement is made on or after July 1, 2006, the applicable rate of interest shall be 6.8 percent on the unpaid principal balance of the loan.
(2)
PLUS loans
Notwithstanding subsection (h) of this section, with respect to any loan under section
1078–2 of this title for which the first disbursement is made on or after July 1, 2006, the applicable rate of interest shall be 8.5 percent on the unpaid principal balance of the loan.
(3)
Consolidation loans
With respect to any consolidation loan under section
1078–3 of this title for which the application is received by an eligible lender on or after July 1, 2006, the applicable rate of interest shall be at an annual rate on the unpaid principal balance of the loan that is equal to the lesser of—
(4)
Reduced rates for undergraduate subsidized loans
Notwithstanding subsection (h) and paragraph (1) of this subsection, with respect to any loan to an undergraduate student made, insured, or guaranteed under this part (other than a loan made pursuant to section
1078–2,
1078–3, or
1078–8 of this title) for which the first disbursement is made on or after July 1, 2006, and before July 1, 2012, the applicable rate of interest shall be as follows:
(A)
For a loan for which the first disbursement is made on or after July 1, 2006, and before July 1, 2008, 6.8 percent on the unpaid principal balance of the loan.
(B)
For a loan for which the first disbursement is made on or after July 1, 2008, and before July 1, 2009, 6.0 percent on the unpaid principal balance of the loan.
(C)
For a loan for which the first disbursement is made on or after July 1, 2009, and before July 1, 2010, 5.6 percent on the unpaid principal balance of the loan.
(m)
Lesser rates permitted
Nothing in this section or section
1078–3 of this title shall be construed to prohibit a lender from charging a borrower interest at a rate less than the rate which is applicable under this part.
(n)
Definitions
For the purpose of subsections (a) and (d) of this section—
[1] See References in Text note below.
[2] See References in Text note below.