# How to calculate interest payments on a loan

**Important Interest Rate Information****Current Consolidation Interest Rate****Direct Loan and FFEL Interest Rates from July 1, 2013 to June 30, 2014****Information for borrowers who consolidated during the Repayment Incentive Program (10/1/00 - 9/30/01)**- Questions and Answers Regarding the 0.8% Interest Rate Repayment Incentive Program (DLB-00-51).

1. IMPORTANT INTEREST RATE INFORMATION

The Bipartisan Student Loan Certainty Act of 2013 changed the formula for determining the interest rate for Direct Consolidation Loans as follows:

For Direct Consolidation Loans that are made based on applications received on or after July 1, 2013, the weighted average interest rate is no longer capped at 8.25%.

2. Current Consolidation Interest Rate.

- The interest rate for a Direct Consolidation Loan is the weighted average of the interest rates on the loans being consolidated (as of the date we receive the application), rounded to the nearest higher one-eighth of one percent. This rate is fixed for the life of the loan. The interest rate for Direct Consolidation Loans that were made based on applications received prior to July 1, 2013 will not exceed 8.25 percent. The interest rate for Direct Consolidation Loans that were made based on applications received on or after July 1, 2013, there is no cap on the interest rate.

** Five steps to calculate the Weighted Average Interest Rate**

Step 1:

Multiply each loan by its interest rate to obtain the "per loan weight factor."

Step 2:

Add the per loan weight factors together.

Step 3:

Add the loan amounts together.

Step 4:

Divide the "total per loan weight factor" by the total loan amount and then multiply by 100.

Step 5:

*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.

3. Direct Loan and FFEL

Interest Rates from July 1, 2013 to June 30, 2014.

**Direct Loans Interest Rates**

- Federal Direct Subsidized Loans [PDF Format (8K)]

**Federal Family Education Loans (FFEL) Interest Rates**Interest rates for FFEL Program for the period July 1, 2013 through June 30, 2014.

- FFEL "Converted " Variable-rate Stafford Loans [PDF Format (8K)]

4. Information for borrowers who consolidated during the Repayment Incentive Program (10/1/00 - 9/30/01)

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**

__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).

Source: loanconsolidation.ed.gov

Category: Bank