Interest rate increase for federal loans will affect veterinary students

Published on July 07, 2017

Student-Debt-2016_EconfactMany veterinary students rely at least partially on federal loans to finance their education. That’s why it’s important for veterinary students to be aware that interest rates for federal student loans increased on July 1. We know this change is unwelcome news for veterinary students, and the AVMA is working hard to secure lower interest rates in the reauthorization of the Higher Education Act.

The July 1 changes are based on formulas outlined in the Higher Education Act (20 U.S.C. 1087e(b)). Rates for direct unsubsidized loans for graduate students rose to 6 percent, up from 5.31 percent previously. Rates for direct PLUS loans also rose, to 7 percent from 6.31 percent. These rate changes mean that a veterinary student who borrows $50,000 in 2018 will pay approximately $2,000 more over a 10-year standard repayment term than they would have if they had borrowed in 2017.

The interest rate increases do not apply to federal student loans previously disbursed or to private student loans. Here is a chart that lets you view all of the affected interest rates and see how they are calculated. Under the Higher Education Act, the fixed interest rate for loans disbursed on or after July 1, 2013, has been calculated based on the high yield of 10-year Treasury notes auctioned at the final auction held before June 1 of each year, plus a statutory add-on percentage (a “margin”). In each case the calculated rate is capped at a maximum interest rate. On May 10, 2017, the U.S. Treasury Department held a 10-year Treasury note auction that resulted in a high yield of 2.400 percent, which generated the new rates.

Interest rates aren’t the only issue at stake in the reauthorization of the Higher Education Act. The AVMA is also pushing for elimination of origination fees, preservation of the Public Service Loan Forgiveness program and maintenance of federal borrowing limits for graduate students, among other items – all with the goal of supporting affordable education financing options for veterinary students. If you are interested in getting involved on this issue, we encourage you to sign up to receive issue alerts and updates from the AVMA Congressional Advocacy Network (AVMA-CAN).