October 2, 2003

SUBJECT: Federal Family Education Loan Program Special Allowance Rates
for the Quarter Ending September 30, 2003

The Treasury Department has published the average of the bond equivalent
rates of the ninety-one day Treasury bills auctioned during the quarter
ending **September 30, 2003**, as **.95** percent. Further, the average
of the bond equivalent rates of the quotes of the 3-month commercial
paper (financial) rates in effect for each of the days in the quarter
ending **September 30, 2003**, is **1.07** percent.

**Attachment A** contains the bond equivalent rates of the 91-day
Treasury Bills auctioned during the quarter. **Attachments B, C & D**
contain the quarterly special allowance rates computed pursuant to
section 438 of the Higher Education Act of 1965, as amended (the Act).

> Accounting Division
>
> Chief Financial Office

Attachments

+--------------------------+--------------------------------------------+
| # AUCTION DATE           | # BOND EQUIVALENT RATE                     |
+--------------------------+--------------------------------------------+
| 07/07/03                 | 0.907%                                     |
+--------------------------+--------------------------------------------+
| 07/14/03                 | 0.895%                                     |
+--------------------------+--------------------------------------------+
| 07/21/03                 | 0.911%                                     |
+--------------------------+--------------------------------------------+
| 07/28/03                 | 0.964%                                     |
+--------------------------+--------------------------------------------+
| 08/04/03                 | 0.964%                                     |
+--------------------------+--------------------------------------------+
| 08/11/03                 | 0.960%                                     |
+--------------------------+--------------------------------------------+
| 08/18/03                 | 0.964%                                     |
+--------------------------+--------------------------------------------+
| 08/25/03                 | 0.997%                                     |
+--------------------------+--------------------------------------------+
| 09/02/03                 | 0.988%                                     |
+--------------------------+--------------------------------------------+
| 09/08/03                 | 0.951%                                     |
+--------------------------+--------------------------------------------+
| 09/15/03                 | 0.947%                                     |
+--------------------------+--------------------------------------------+
| 09/22/03                 | 0.953%                                     |
+--------------------------+--------------------------------------------+
| 09/29/03                 | 0.953%                                     |
+--------------------------+--------------------------------------------+
|                          | 12.354%                                    |
+--------------------------+--------------------------------------------+
| **AVERAGE =.95%**        |                                            |
+--------------------------+--------------------------------------------+

> **Attachment B Includes**: Stafford loans (subsidized and
> unsubsidized), PLUS loans, SLS loans, and Consolidation loans made or
> purchased with taxable funds.

I. \-- Stafford (subsidized and unsubsidized), PLUS (fixed-rate;
includes student-borrower component of the PLUS Program), and
Consolidation loans:

made prior to 10/1/81.

> **Formula:** **(.95%)** plus (3.5%) less (applicable interest rate),
> rounded up to the nearest 1/8th of 1% = annual special allowance rate.

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | R                      | Period              |
|                      | ate^\*^]{.smallcaps}** | ^\*^]{.smallcaps}** |
+----------------------+------------------------+---------------------+

7% .00 .000000

9% .00 .000000

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

^\*^ The Special Allowance at Annual Rate and Special Allowance for
3-month Period figures are shown as decimals throughout this memo, e.g.,
0.5% (one-half of one percent) is shown as .005\", 1.5% (one and
one-half percent) is shown as .015\", etc.

II\. \-- Stafford (subsidized only) and PLUS (fixed-rate, includes
student borrower component of the PLUS program) loans:

> made on/after 10/1/81, but prior to 10/17/86.
>
> made on/after 10/17/86, but prior to 11/16/86, for periods of
> enrollment beginning prior to 11/16/86.
>
> \-- Consolidation loans:
>
> made on/after 10/1/81, but prior to 11/16/86.
>
> \-- *Also*, certain taxable obligations of South Carolina and Maine.
>
> **Formula:** (**.95%**) plus (3.5%) less (applicable interest rate) =
> annual special allowance rate.

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

7% .00 .000000

8% .00 .000000

9% .00 .000000

12% .00 .000000

14% .00 .000000

III\. \-- Stafford loans:

> (subsidized) made on/after 10/17/86, but prior to 11/16/86, for
> periods of enrollment beginning on/after 11/16/86.
>
> (subsidized) made on/after 11/16/86, but prior to 10/1/92.
>
> (unsubsidized, made pursuant to 428H of the Act) made prior to 10/1/92
> for periods of enrollment beginning on/after 10/1/92.
>
> \-- PLUS/SLS loans:
>
> (fixed-rate) made on/after 10/17/86, but prior to 11/16/86, for
> periods of enrollment beginning on/after 11/16/86.
>
> (fixed-rate) made on/after 11/16/86, but prior to 7/1/87.
>
> (variable-rate) made on/after 7/1/87, but prior to 10/1/92, *only* if
> the variable-rate for each July 1 - June 30 period reaches the
> statutory maximum of 12%.
>
> \-- Consolidation loans:
>
> made on/after 11/16/86, but prior to 10/1/92.
>
> **Formula:** (**.95%**) plus (3.25%) less (applicable interest rate) =
> annual special allowance rate.

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

4.22% ^1,2,3^ .00 .000000

4.37% ^4^ .00 .000000

7% .00 .000000

8% .00 .000000

9% .00 .000000

10% .00 .000000

11% .00 .000000

12% .00 .000000

13% .00 .000000

14% .00 .000000

***Also included for the period 7/1/03 - 6/30/04 (Fixed-rate Stafford
loans that were subject to the \"windfall profits\" provisions of
427A(i)(3) or 427A(i)(1) of the Act and that have been converted to a
variable rate):***

^1^ Fixed-rate 7% Stafford loans (1992 Amendments).

^2^ (a) Fixed-rate 8% Stafford loans, and (b) 8/10 Stafford loans (prior
to the 49*th* month of repayment) (1992 Amendments).

> ^3^ (a) Fixed-rate 9% Stafford loans, and (b) 8/10% Stafford loans
> (on/after the 49*th* month of repayment) (1992 Amendments).

^4^ Fixed-rate 8/10% Stafford loans (on/after the 49*th* month of
repayment) (1986 Amendments).

***See 427A(i)(7)(D) of the Act*.**

IV\. \-- Stafford loans:

> (subsidized) made on/after 10/1/92, but prior to 7/1/95.
>
> (unsubsidized) made on/after 10/1/92, but prior to 7/1/95, for periods
> of enrollment beginning on/after 10/1/92.
>
> (subsidized and unsubsidized) made on/after 7/1/95 but prior to
> 7/1/98, *except* during the in-school, grace, and deferment periods.
>
> \-- PLUS/SLS loans:
>
> (variable-rate) made on/after 10/1/92 but prior to 7/1/94, *only* if
> the variable-rate for each July 1 - June 30 period reaches the
> statutory maximum of 11% (SLS) or 10% (PLUS).
>
> \-- PLUS loans:
>
> (variable-rate) made on/after 7/1/94 but prior to 7/1/98.
>
> (variable-rate) made on/after 7/1/98 but prior to 1/1/00 (special
> allowance shall not be paid unless the calculated interest rate
> exceeds the 9% cap).
>
> \-- Consolidation loans:
>
> made on/after 10/1/92 but prior to 10/1/98.
>
> **Formula:** (**.95%**) plus (3.1%) less (applicable interest rate) =
> annual special allowance rate.

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

4.05%^5^ .00 .000000

4.22% ^6,\ 7,\ 8^ .00 .000000

\[continued\...\]

^5^ PLUS loans made on/after 7/1/94 but prior to 7/1/98.

^6^ Fixed-rate 7% Stafford Loans (1992 Amendments).

^7^ (a) Fixed-rate 8% Stafford loans, and (b) 8/10% Stafford loans
(prior to the 49*th* month of repayment) that were subject to the
"windfall profits" provisions of 427A(i)(3) of the Act and that have
been converted to a variable rate (1992 Amendments).

^8^ (a) *All* Stafford loans made for periods of enrollment that either
begin on/after 7/1/94 or include that date for which the first
disbursement is made on/after 7/1/94 but prior to 7/1/95, (b) Stafford
loans for which the first disbursement is made on/after 7/1/95 and
before 7/1/98, *except during the in-school, grace, and deferment
periods,* and (c) consolidation loans for which the loan application was
received on/after 11/13/97 and prior to 10/1/98.

IV\. \[\...*continued*\]

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

4.22%^9^ .00 .000000

6%^10^ .00 .000000

7% .00 .000000

8% .00 .000000

9% .00 .000000

10% .00 .000000

11% .00 .000000

12% .00 .000000

13% .00 .000000

14% .00 .000000

> ***Also included for the period 7/1/03 - 6/30/04 (Fixed-rate Stafford
> loans that were subject to the \"windfall profits\" provisions of
> 427A(i)(3) of the Act and that have been converted to a variable
> rate):***

***See 427A(i)(7)(D) of the Act.***

> ^9^ (a) Stafford loans, made to new borrowers, for which the first
> disbursement is made on/after 10/1/92 but prior to 7/1/94, (b)
> fixed-rate 9% Stafford loans that were subject to the \"windfall
> profits\" provisions of 427A(i)(3) of the Act and that have been
> converted to a variable rate; *see* 427A(i)(7)(D) of the Act and (c)
> 8/10% Stafford loans (on/after the 49*th* month of repayment) that
> were subject to the "windfall profits" provisions of 427A(i)(3) of the
> Act and that have been converted to a variable rate (1992 Amendments).

^10^ The 6% interest and special allowance rates *only* apply to
Consolidation loans made on/after 7/1/94 with tax-exempt funds; the 10%,
11%. 13% and 14% interest and special allowance rates *only* apply to
Consolidation loans made with tax-exempt funds.

V. \-- Stafford loans (subsidized and unsubsidized):

> made on/after 7/1/95 but prior to 7/1/98, *only* during the in-school,
> grace, and deferment periods.
>
> **Formula:** (**.95%**) plus (2.5%) less (applicable interest rate) =
> annual special allowance rate.

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

3.62% .00 .000000

VI\. \--Stafford loans (subsidized and unsubsidized):

> made on/after 7/1/98 but prior to 1/1/00 *only* during the in-school,
> grace, and deferment periods.

**Formula:** (**.95**%) plus (2.2%) less (applicable interest rate) =
special allowance rate.

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

2.82% .0033 .000825

VII\. \--Stafford loans (subsidized and unsubsidized):

> made on/after 7/1/98 but prior to 1/1/00, *except* during the
> in-school, grace, and deferment periods.

**Formula:** (**.95**%) plus (2.8%) less (applicable interest rate) =
special allowance rate.

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

3.42% .0033 .000825

VIII. \--Consolidation loans

made on/after 10/1/98 but prior to 1/1/00

**Formula:** (**.95%**) plus (3.1%) less (applicable interest rate) =
special allowance rate.

> Note: The interest rate for these consolidation loans is determined by
> taking the weighted average of the interest rates on the loans being
> consolidated, rounded to the nearest higher 1/8^th^ of one percent.
> Therefore, due to the wide range of possible applicable interest
> rates, no further calculations are shown here.
>
> **Attachment C Includes**: Loans made or purchased with (a) funds
> obtained by the holder from the issuance, or refinancing of
> obligations originally issued prior to 10/1/93, or (b) funds derived
> from default reimbursements, collections, interest, or other income
> resulting from loans made or purchased with such tax-exempt funds.

I. \-- Tax-exempt loans, otherwise eligible for special allowance, made
on/after 10/1/80, but prior to 10/1/81.

> **Formula:** (**.95%**) plus (3.5%) less (applicable interest rate),
> rounded up to the nearest 1/8th of 1%, divided by two = annual special
> allowance rate, *however* the annual special allowance rate is *not
> less than* 2.5% (for 7% loans) and 0.5% (for 9% loans).

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

7% .025 .00625

9% .005 .00125

II\. \-- Tax-exempt loans, otherwise eligible for special allowance,
made on/after 10/1/81.

> **Formula:** (**.95**%) plus (3.5%) less (applicable interest rate),
> divided by two = annual special allowance rate, *however* the annual
> special allowance rate is *not less than*:
>
> For loans made prior to 10/1/92, 2.5% (for 7% loans), 1.5% (for 8%
> loans), and 0.5% (for 9% loans).
>
> For loans made on/after 10/1/92, 9.5% less the applicable interest
> rate.

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

2.82% ^11^ .0668 .016700

3.42%^12^ .0608 .015200

3.62% ^13^ .0588 .014700

4.05%^14^ .0545 .013625

4.22%^15^ .0528 .013200

\[continued\...\]

> ***For the period 7/1/03 -- 6/30/04:***
>
> ^11^ Stafford loans made on/after 7/1/98 but prior to 7/1/06, *only*
> during the in-school, grace, and deferment periods.
>
> ^12^ Stafford loans made on/after 7/1/98 but prior to 7/1/06, *except*
> during the in-school, grace and deferment periods.
>
> ^13^ Stafford loans for which the first disbursement is made on/after
> 7/1/95 and before 7/1/98, *only* during the in-school, grace, and
> deferment periods.
>
> ^14^ PLUS loans made on/after 7/1/94 but prior to 7/1/98.

^15^ (a) Fixed-rate 7% Stafford loans that were subject to the "windfall
profits" provisions of 427A(i)(3) of the Act and that have been
converted to a variable rate, and (b) fixed-rate 8% Stafford loans, and
8/10% Stafford loans (prior to the 49*th* month of repayment) that were
subject to the \"windfall profits\" provisions of 427A(i)(3) of the Act
and that have been converted to a variable rate. Also, *see*
427A(i)(7)(D) of the Act. (1992 Amendments).

II\. \[\...continued\]

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

4.22% ^16,17^ .0528 .013200

4.37% ^18^ .0513 .012825

6%^19^ .035 .008750

7% .025 .006250

8% .015 .003750

9% .005 .001250

10% .00 .000000

11% .00 .000000

12% .00 .000000

13% .00 .000000

14% .00 .000000

***For the period 7/1/03 - 6/30/04:***

> ^16^ (a) Stafford loans, made to new borrowers, for which the first
> disbursement is made on/after 10/1/92 but prior to 7/1/94 (b)
> fixed-rate 9% Stafford loans that were subject to the "windfall
> profits" provisions of 427A(i)(3) of the Act and that have been
> converted to a variable rate; *see* 427A(I)(7)(D) of the Act and (c)
> 8/10% Stafford loans (on/after the 49*th* month of repayment) that
> were subject to the \"windfall profits\" provisions of 427A(i)(3) of
> the Act and that have been converted to a variable rate. (1992
> Amendments).
>
> ^17^ (a) *All* Stafford loans made for periods of enrollment that
> either begin on/after 7/1/94 or include that date for which the first
> disbursement is made on/after 7/1/94 but prior to 7/1/95, and (b)
> Stafford loans for which the first disbursement is made on/after
> 7/1/95 and before 7/1/98, *except during the in-school, grace, and
> deferment periods*.
>
> ^18^ Fixed-rate 8/10% Stafford loans that were subject to the
> "windfall profits" provisions of 427A(i)(1) of the Act and that have
> been converted to a variable rate; see 427A(i)(7)(D) of the Act (1986
> Amendments).
>
> ^19^ The 6% interest rates and special allowance rates *only* apply to
> Consolidation loans made on/after 7/1/94 with tax-exempt funds; the
> 10%, 11%, 13% and 14% interest and special allowance rates *only*
> apply to Consolidation loans made with tax-exempt funds.

**Attachment D** Includes: Loans made on or after January 1, 2000 for
which the special allowance is calculated using the average of the bond
equivalent rates of the quotes of the 3-month commercial paper
(financial) rates in effect for each of the days in the quarter.

I.  --Stafford loans (subsidized and unsubsidized):

> made on/after 1/1/00 but prior to 7/1/06, *only* during the in-school,
> grace and deferment periods.
>
> **Formula: (1.07%)** plus (1.74%) less (applicable interest rate) =
> annual special allowance rate.

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

> 2.82% .00 .000000

II. --Stafford loans (subsidized and unsubsidized):

> made on/after 1/1/00 but prior to 7/1/06, *except* during the
> in-school, grace and deferment periods.
>
> **Formula: (1.07%)** plus (2.34%) less (applicable interest rate) =
> annual special allowance rate.

+----------------------+------------------------+---------------------+
| **[Applicable        | **[Special             | **[Special          |
| A                    | Al                     | Allow               |
| nnual]{.smallcaps}** | lowance]{.smallcaps}** | ance]{.smallcaps}** |
|                      |                        |                     |
| **[Interest          | **[At Annual           | **[For 3-month      |
| Rate]{.smallcaps}**  | Rate]{.smallcaps}**    | Pe                  |
|                      |                        | riod]{.smallcaps}** |
+----------------------+------------------------+---------------------+

> 3.42% .00 .000000

III. --PLUS loans

> made on/after 1/1/00 but prior to 7/1/06 (special allowance shall not
> be paid unless the calculated interest rate exceeds the 9% cap).
>
> **Formula:** (**1.07**%) plus (2.64%) less (applicable interest rate)
> = annual special allowance rate.
>
> Note: The current interest rate for PLUS loans is 4.22%. Since this
> rate does not exceed the 9% cap, no special allowance will be paid
> during the period 7/1/03 through 6/30/04.

IV. -Consolidation loans

> for applications received on/after 1/1/00 but prior to 7/1/06
>
> **Formula:** (**1.07**%) plus (2.64%) less (applicable interest rate)
> = annual special allowance rate.
>
> Note: The interest rate for these consolidation loans is determined by
> taking the weighted average of the interest rates on the loans being
> consolidated, rounded to the nearest higher 1/8^th^ of one percent.
> Therefore, due to the wide range of possible applicable interest
> rates, no further calculations are shown here.