Private Loan Interest Rate Index Changes – No Action Needed
The way the interest rate is calculated on your loan(s) is transitioning from the London Interbank Offered Rate (LIBOR) to an index based on the Secured Overnight Financing Rate (SOFR). This is a necessary change that impacts all loans with LIBOR-based variable interest rates. The government has determined that the new rate benchmark is comparable to LIBOR. That means the new rate should not change how much you pay over time, on average.
The new rate does not impact any other terms, conditions, or benefits associated with your loan(s).
The benchmark used to calculate the variable interest rate of your loan(s) will change from the London Inter-Bank Offered Rate (LIBOR) to an index based on the Secured Overnight Financing Rate (SOFR).
Following the direction of the government, many LIBOR-based variable rate loans are transitioning to SOFR. This is a shift to an index based on the SOFR rate, not a refinance of your loan(s); it is merely a change to the benchmark used to determine your variable interest rate. This will happen automatically and the servicing of your loan(s) will not change.
You aren’t alone. This change impacts millions of borrowers like you, with all lenders and loan types across the country. Federal student loans are not impacted by this change.
You’ll be sent a communication notifying you when your loans will be transitioned to an index based on the SOFR rate.
You do not need to do anything related to this change.
We will handle the transition, just as the entire banking and lending industry is doing for all their customers.
On average, your new interest rate will be comparable to the old rate. That means you will generally pay the same amount that you would have before the change.
With a variable rate loan(s), your monthly payment amount may have changed on a regular schedule since your loan(s) was disbursed (e.g., due to a change in interest rates or payments you have made). It will continue to change on a comparable schedule according to the terms and conditions of your loan(s). Only the benchmark used to calculate the variable interest rate will change.
In 2022, the government passed a law that made SOFR the preferred alternative to LIBOR. SOFR is a broad measure of the cost of borrowing cash overnight—it is comparable to LIBOR. It is collateralized (made secure) by U.S. Treasury securities in the financial market. To adjust for small differences between LIBOR and SOFR, the government also legislated a spread adjustment to make them even more comparable using an index based on the SOFR rate.
Your interest rate remains variable. It will change with a frequency comparable to how it changed before, based on the terms and conditions of your loan(s).
Your lender will calculate your interest rate using an index based on the SOFR rate, plus the margin you were given when taking out the loan(s). Once the updated interest rate is released, it will be reflected on your billing statement and in the Loan Details section of your online account.
Other loans may be impacted. If your loan(s) uses LIBOR, they will change to a new benchmark index.
No, you cannot opt out.
LIBOR will not be available after June 30, 2023, and the government has provided the guidance to adjust the benchmark for your loan(s). This ensures that both you and your loan holder have a predictable and stable way to calculate your rate.
Federal regulators and the government took steps to reduce the chances of the benchmark changing again. Although there is always the possibility of a similar change in the future, you should not anticipate any disruptions.
SOFR has several characteristics that make it much safer and more stable than LIBOR. SOFR is:
- Based on an active underlying market with a diverse set of borrowers and lenders.
- Based entirely on transactions (not estimates).
- Produced in compliance with international best practices.
- Included in multiple market segments, to ensure robust transaction volumes in a wide range of market conditions.