Student Loans: No Changes? Not for Everyone!
- Stafford Subsidized Direct Loans remain at 3.4% for undergraduates.
- Other changes were made, not all for the better.
- Graduate students are not eligible for unsubsidized loans.
Student Loan Changes: Ups and Downs
The good news for undergraduate students is that the Stafford loan interest rate remains unchanged for the upcoming 2012-2013 school year. Any Stafford loan taken during that school year will have a fixed interest rate of 3.4% for the entire life of the loan.
However, other changes were made in the student loan program, too. Some affect undergraduates and others affect graduate students. Not all changes are for the better.
Student Loan Changes - July 2012
The Dept. of Education on their student aid Web site published information about 8 important changes as follows:
1. Eligibility of Students without a High School Diploma
In order to eligible for federal aid, you will need either a high school diploma or a recognized equivalent. Check the studentaid.ed.gov site for basic eligibility requirements.
2. Expected Family Contribution:
Any student looking for financing should first go over the type of federal aid that they may be eligible to receive, including grants, subsidized loans and unsubsidized loans. Your first step is to fill out the FAFSA form (Free Application for Federal Student Aid) The amount of aid you can receive depends on many factors, including how much income your earn. The amount of grants and aid you can receive is determined, among other factors, by the amount of income your family makes and the amount of funds they are expected to contribute to your income. The new change makes it harder for a dependent student to qualify for the automatic zero family contribution because the qualifying family income is now $23k instead of $32k.
3. Federal Pell Grant Program - Duration of Eligibility:
Currently, the maximum amount of Federal Pell Grants is $5,500. If you take less than the full amount, you can carry over the unused portion (never exceeding the 100% for one year). The new law limits the amount of time you can utilize your grants to 12 semesters or 600%.
4. Direct Student Loan Changes:
- Direct Subsidized loans - interest on grace period
This will hit the pocket book for all students taking out direct subsidized loans during the 2012-2013 academic year. Upon graduation (and after any deferment period) the government will no longer pay for interest during the 6 month grace period. You can roll the interest into your principal. On a $5,500 loan, that means another $97, based on today’s interest rate of 3.4%. The monthly payment will increase by a less than a dollar a month.
- Low interest rates for Subsidized loans to undergraduates:
3.4% This issue was the crux of the Obama student loan campaign and the new legislation limiting subsidized student loans (to undergraduates) at 3.4%. The interest is valid till June 30, 2013, at which time it will revert to 6.8%, unless new legislation is passed.
- Graduate and professional students are no longer eligible to receive subsidized loans.
This is a big change. Graduate and professional students are no longer eligible for subsidized loans. That means that they will be responsible for interest payments during the time they are in school or received a deferment. In addition they will not be eligible for the 3.4% loans. The additional cost for a three year program will be more than $7,500 due to the increased interest rate and the interest due on the loans for the 3 ½ year period.
- US Dept. of Education can no longer offer borrowers repayment incentives (except for interest rate reductions for borrowers who set up automatic electronic debit from their bank account).
Bills.com offers many tools and resources about student loans. If you are having trouble paying your student loan then check out the Bills.com article about stopping garnishment on student loans.
Student Loans - Be Prepared for Changes
Student loans are complicated. It is almost impossible to plan ahead for the 4 years of undergraduate school, let alone for an advanced degree. Although the politicians wish to help control the cost or student loans, no tinkering with student loan interest rates is going to make college affordable, when the price of getting an education keeps increasing year after year. It is not always clear that the job market justifies the expense in education, especially if it is an expensive school. Your most prudent course may be to figure out how you can get the degree that advances your career at the lowest possible cost.
Bills.com offers you information about getting student loans (private and federal), income based repayment plans, consolidating student loans and many other topics. Some of our most popular student loan pages are: