Loans

Significant Changes to the Federal Student Loan program beginning July 1, 2012

The Budget Control Act of 2011, passed on August 2, 2011, brings about some significant changes to the federal student loan program. Here is a brief summary of provisions that go into effect July 1, 2012:

• Federal Subsidized Direct Loans for graduate students are eliminated. This means all federal student loan money for graduates will be unsubsidized. In the 2012-13 award year the annual unsubsidized loan limit for graduate students is $20,500. Currently, qualifying students could receive up to $8,500 of the $20,500 in subsidized loans, which are interest free to the student while in a qualified period of deferment (this includes being enrolled at least half-time).
• For all students, Direct Loan Repayment Incentives were eliminated. These incentives provided a means to make loans affordable on the front end and while in repayment. On the front end, rebates had been provided to reduce the origination fee, meaning the student receives more loan money to use for educational purposes due to fewer upfront fees deducted prior to disbursement. In repayment, students could qualify for reductions to their interest rate making the overall cost of the loan less expensive. The only repayment incentive that may still be possible is an interest rate reduction for a borrower who agrees to automatically debited electronic loan payments.
• Grace Period Interest Subsidy eliminated on subsidized loans during the six month grace period. This means that even though you have 6 months after you cease to be enrolled before you have to begin making payments on your federal student loans, your subsidized loan funds will begin charging you interest immediately after you cease to enroll. Previously, the Department of Education would continue paying the interest on the subsidized loan until after the grace period had ended, then the student would go into full repayment.

A change that has nothing to do with the Budget Control Act of 2011 is that at this time interest rates on Federal Subsidized Direct Loans for undergraduate students are due to increase from the current fixed rate of 3.4 % to a new fixed rate of 6.8 %  for all new loans taken on or after July 1, 2012.

To summarize, federal loan money is going to be more expensive for the borrower beginning next year. But, before you decide to abandon the federal loan program and go to private educational loans (alternative loans) for funding, please keep in mind the benefits of the federal student loan program that private lenders are not required to give you. There are more things to consider when taking out a student loan than just the interest rate. Please research all your options thoroughly and carefully. 

For example, federal loans offer the following:

• Congressionally mandated deferment and forbearance periods for qualifying borrowers.
• Multiple repayment plan options to help make repayment more affordable. In some cases the payment could even be $0 for a period of time.
• Loan forgiveness for qualifying borrowers.
• Loan discharge due to death or permanent disability. This means if something happens to you along these lines the debt is forgiven and no one is responsible for it.
• Fixed interest rate that will not increase if rates in the general economy increase in the future.
• Tax deductions for loan interest paid to qualifying borrowers.

A Little More About Federal Student Loans (Direct Loans)...

The Federal Direct Stafford Subsidized Loan
Source: Funds for this loan program are made available through the United States Department of Education.
Criteria: This program is open to all qualifying undergraduate students who are US citizens (or permanent residents) that are enrolled in a degree program and qualify for federal aid.
Award: Subsidized loans are need-based with interest subsidies (paid on behalf of the student by the Department of Education) while the student is enrolled at least 1/2 time. For information about our Direct Loan awarding process, and definitions of commonly used loan terms, please refer to our Federal Direct Loan Information Sheet. For details on maximum award allowances, click HERE.

The Federal Direct Stafford Unsubsidized Loan
Source: Funds for this loan program are made available through the United States Department of Education.
Criteria: This program is open to all undergraduate and graduate students who are US citizens (or permanent residents) that are enrolled in a degree program and qualify for federal aid.
Award: Unsubsidized loans are not based on need, and interest begins to accrue as soon as the loan is disbursed. For information about our Direct Loan awarding process, and definitions of commonly used loan terms, please refer to our Federal Direct Loan Information Sheet. For details on maximum award allowances, click HERE.

The Federal Direct Parent PLUS Loan
Source: Funds for this loan program are made available through the United States Department of Education.
Criteria: Parent applying must be U.S. Citizen or permanent resident, receive credit approval, and their student must qualify to receive federal aid and be enrolled in a degree program.
Award: Parents may borrow up to the cost of attendance for a full time student less any other financial assistance received. This loan is and its repayment is the responsibility of the parent. The parent may choose to go into repayment while their student is still enrolled in college, or they can request that payment be deferred until the student has completed their educaiton (or ceases to be enrolled). During the "deferment" time, interest will continue to accrue, and it is recommended that the parent(s) attempt to make at least the minimum interest payments on a deferred loan-even though it is not required.

 The Federal Direct Graduate PLUS Loan
Source: Funds for this loan program are made available through the United States Department of Education.
Criteria: Applicants must be U.S. Citizens or permanent residents, receive credit approval, and be in a graduate degree program.
Award: The student may borrow up to the cost of attendance for a full time student less any other financial assistance received. This loan is meant to cover the portion of the cost of attendance that is not covered by the graduate unsubsidized loan. Repayment is the responsibility of the student and the student may choose to go into repayment while they are still enrolled in college, or they can request that payment be deferred until they have completed their education (or cease to be enrolled). During enrollment and the "deferment" time, interest will continue to accrue.

The Perkins Loan Program
Criteria: This program is open to all undergrad and grad students who are US citizens or to those who are permanent residents.
Award: Award amounts vary depending on the students need based federal formula and the availability of funds. Deferments and cancellations are available for those who qualify. Program funds are extremely limited, so the Perkins Loan is awarded on a case by case basis by the Director of Financial Aid.

Other Loan Options....

ALTERNATIVE/PRIVATE LOANS

(for more information about Alternative/Private loans through Banks, click the link above)