Current Loan News
Important Announcement for Graduate & Law Students Effective July 1, 2012
The Budget Control Act of 2011 eliminates the in-school loan interest subsidy for graduate and professional students. As of July 1, 2012, Direct Subsidized Loans no longer exist, but only Direct Unsubsidized Loans. The interest will begin accruing upon disbursement of the loan proceeds. This loan change does not impact the loan limit nor the interest rate.
Direct Subsidized Stafford Loan Grace Period for 2012-2014
Students borrowing a Direct Subsidized Loan between 7/1/12 and 7/1/14 (a two year period) should be aware that for this two year period the interest on these loans, though in all prior years was paid by the U.S. Department of Education, will not be paid by the government during the six month grace period provided to students when they are no longer enrolled at least half-time. Like the Direct Unsubsidized Loan, the interest will accrue during grace periods. If the borrower chooses not to pay the interest that accrues during the grace period, the interest will be added to the principal balance. During deferment periods, the interest on these Direct Subsidized Loans will still be paid by the U.S. Department of Education.
Impact of Sequestration on Federal Student Loans
As a result of the automatic federal budget cuts, known as the “sequester,” additional funding reductions will take affect for all Direct Loans. The sequester increases the origination fees paid by borrowers for Direct Loans where the first disbursement is made on or after December 1, 2013. Refer to studentloans.gov for current origination fees for your Direct Loans.
Interest Rate for New Direct Loans
Under the Bipartisan Student Loan Certainty Act of 2013, interest rates will be determined each June for new loans being made for the upcoming award year, which runs from July 1 to the following June 30. Each loan will have a fixed interest rate for the life of the loan. Refer to studentloans.gov for current interest rates for your Direct Loans.
Congress has imposed caps on how high these rates can go in future years: 8.25 percent for undergraduates, 9.5 percent for graduate students and 10.5 percent for PLUS loans. Although the rates are not expected to hit those caps in the next decade, congressional estimates show the rates could get close to the caps.
Effective for loans first disbursed on or after July 1, 2012, the law eliminates the authority of the Department to offer any repayment incentives to Direct Loan borrowers to encourage on-time repayment of loans, including any reduction in the interest rate or origination fee. As a result, the up-front interest rebate is no longer provided to Direct Loan borrowers at the time of loan disbursement for loans with a first disbursement date on or after July 1, 2012.
Maximum Eligibility Period to Receive Direct Subsidized Loans
As of July 1, 2013, a new provision was added to the Direct Loan statutory requirements that limit a first-time borrower’s eligibility for Direct Subsidized Loans to a period not to exceed 150 percent of the length of the borrower’s educational program. Under certain conditions, the provision also causes first-time borrowers who have exceeded the 150 percent limit to lose the interest subsidy on their Direct Subsidized Loans.
Note: Only first-time borrowers on or after July 1, 2013, are subject to the new provision. Generally, a first-time borrower is one who did not have an outstanding balance of principal or interest on a Direct Loan or on a FFEL Program Loan on July 1, 2013.