The Budget Control Act of 2011 was signed into law on August 2, 2011, and sets forth several changes to the federal student loan program beginning July 1, 2012. These changes will not affect the amount of funding available to you through student loans, but will impact the terms for repayment.
The main changes related to your eligibility for federal student loans are:
Elimination of Interest Subsidy for Graduate Students (Subsidized Stafford Loans)
- The new law eliminates the interest subsidy for graduate students beginning July 1, 2012 (the 2012-13 academic year).
- Our understanding is that eligible students will continue to be able to borrow up to $20,500 through Stafford loans annually, but the entire amount will be unsubsidized, meaning interest will accrue on the entire amount beginning at disbursement.
- All subsidized Stafford loans disbursed prior to July 1, 2012 will remain interest free while in school and during the 6-month grace period.
- Currently, about one-third of student loan debt owed by graduate and professional students is subsidized, this change will increase the average debt at the start of repayment by about 6% overall (typically between $2,000 and $4,000).
Elimination of Repayment Incentives
- The new law eliminates the up-front origination fee rebate on all Stafford and Graduate PLUS loans beginning July 1, 2012.
- Currently there is a 1.0% origination fee on Stafford loans, with an upfront rebate of 0.5% (making the actual origination fee 0.5%). The Graduate PLUS loan has a 4.0% origination fee, with an upfront rebate of 1.5% (making the actual origination fee 2.5%).
- Borrowers will be able to keep these rebates on any Stafford or Graduate PLUS loan disbursed before July 1, 2012, if they make their first 12 payments on time.
- Stafford loans disbursed on or after July 1, 2012 will have an origination fee of 1.0%. (Example: $20,500 gross = $20,295 net, with a $205 fee deducted by the Department of Education).
- Graduate PLUS loans disbursed on or after July 1, 2012 will have an origination fee of 4.0%. (Example: $20,000 gross = $19,200 net, with an $800 fee deducted by the Department of Education.)
- The Act prohibits the Department of Education from authorizing or providing repayment incentives, such as a principle reduction due to on-time payments, on new loans disbursed on or after July 1, 2012. Although, the Act stipulates “…the Secretary may provide for an interest rate reduction for a borrower who agrees to have payments on such a loan automatically electronically debited from a bank account.”
- Budget Control Act of 2011
- Congress Raises Debt Ceiling, with Shifts and Cuts in Student Aid Funding