2012-13 Direct Stafford Loan Changes
The federal government’s Budget Control Act of 2011 impacts students pursuing graduate education throughout the United States. For those receiving a federal Stafford or Grad PLUS Loan, the act:
- Eliminates the interest subsidy for subsidized Stafford Loans effective for new loans received on or after July 1, 2012. Students may still borrow the same amount, but the Stafford Loan will now be completely unsubsidized. This means the federal government will no longer pay the interest on loans while a student is enrolled half-time or more, and during deferment and grace periods.
- Eliminates the rebate for all Direct Loans (subsidized, unsubsidized, and Grad PLUS) effective for new loans beginning July 1, 2012. Currently, a 1 percent fee applies on each Stafford Loan and a 4 percent fee on each Graduate PLUS Loan, but a portion of the fee is rebated at the time of disbursement (.05 percent on Stafford and 1.5 percent on PLUS). Students will now incur the full cost.
Frequently Asked Questions
How do changes to Direct Stafford Loans impact graduate and professional students?
Recently, there have been two major changes to the Direct Loan program. A provision in the Budget Control Act of 2011 made graduate and professional students no longer eligible for Subsidized Stafford loans. This means the available loans for the graduate and professional students are the Unsubsidized loan and the Grad PLUS loan. Interest accrues on Unsubsidized and Grad PLUS loans while still in school. Second, borrower repayment incentives have ended. As a result, no up-front interest rebates will be offered. The Consolidation Appropriations Act of 2012 eliminated the grace period benefit for loans made in academic years 2012-2013 and 2013-2014.
When does the graduate loan subsidy change begin?
The change applies to loans made for graduate and professionals students for periods of enrollment beginning on or after July 1, 2012.
How will this affect my overall loan limits, both annually and aggregately?
The annual Stafford Loan limit for graduate and professional students remains $20,500. The aggregate Stafford Loan limit also stands unchanged at $138,500. The Graduate PLUS Loan will still be offered up to the cost of attendance for students who qualify for the loan.
Why are these changes happening?
The Budget Control Act of 2011 signed into law on August 2, 2011, calls for immediate cuts to federal student aid programs. In order to protect the Pell Grant program for the neediest undergraduate students, Congress eliminated the subsidy for graduate and professional students and used that savings to boost the Pell Grant program that was operating with an $18.3 billion shortfall. The act also terminated the Department of Education’s ability to offer any repayment incentives to Direct Loan borrowers.
Will this affect the previous subsidized loans I have already received?
The Budget Act is not retroactive. The current subsidized loans received by graduate and professional students will remain in accordance with the terms of the loan’s promissory note.
What is the current interest rate on the unsubsidized loan?
The Unsubsidized Direct Loan has a fixed interest rate of 6.8 percent. Because interest begins to accrue upon loan disbursement and while the student is still in school, the total loan will increase by the time a student starts repayment. The amount of the increase depends upon the total amount borrowed and the length of the student’s graduate or professional program.
Does the Budget Control Act of 2011 change when I have to start repaying the loan?
Although interest begins to accrue immediately, graduate and professional students still have the options of deferring payment of their loans until after graduation. In most cases, students do not have to begin repayment of their loans until six months after graduating or until ceasing to be enrolled at least half time. We encourage our students to make quarterly interest payments as an effective strategy to decrease the total loan debt by the time of repayment.