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Federal Student Loan Changes, Effective July 1, 2012
Recently enacted federal laws will mean changes in some of the terms of federal student loans, beginning July 1. It is important to note that these changes do not affect the terms of any loans you have already. If you are taking out new student loans for the 2012-2013 academic year, the following changes may affect you:

No more subsidized loans for graduate and professional students. If you are pursuing a graduate degree (for example, master’s, doctoral) or professional degree (for example, medical, law), you no longer will be eligible for Direct Subsidized Stafford loans. This change is effective for loans made for periods of enrollment that begin on or after July 1, 2012. Graduate and professional students still are eligible to borrow up to $20,500 annually — higher limits apply to certain health professions students — in Direct Stafford Loans, but all of the loan amount will be in Direct Unsubsidized Stafford Loans. On subsidized loans, the federal government pays the interest that accumulates while a borrower is in school at least half time. On unsubsidized loans, borrowers are responsible for the interest that accumulates while they are in school.

Lower subsidized Stafford rate preserved. The U.S. Congress has preserved for one more year the reduced 3.4 percent interest rate on Direct Subsidized Stafford Loans to undergraduate students. But to pay part of the cost of extending the lower interest rate to June 30, 2013, Congress imposed new limitations on future eligibility for subsidized Stafford loans. Beginning July 1, 2013, new Stafford loan borrowers will qualify for subsidized loans for only 150 percent of the length of their educational programs. In other words, students pursuing four-year degrees would be eligible for subsidized loans for six years of study; students pursuing two-year degrees would be eligible for subsidized loans for three years of study.

Temporary suspension of interest subsidy during grace period. A recent change in federal law temporarily suspends government subsidies of interest on Direct Subsidized Stafford Loans during a borrower’s six-month grace period. This change means that for Direct Subsidized Stafford Loans first disbursed between July 1, 2012, and June 30, 2014, the borrower will be responsible for any interest that accumulates during the six-month post-school grace period.

End of upfront interest rebate on Direct Loans. For Direct Loans first disbursed on or after July 1, 2012, borrowers no longer will benefit from an upfront interest rebate of 0.5 percent of the loan amount for Direct Stafford Loans and 1.5 percent for Direct PLUS loans. These interest rebates had been granted contingent on borrowers’ making their first 12 monthly payments on time. The change in the law will not affect a 0.25 percentage point interest rate reduction that Direct Loan borrowers may continue to receive by permitting their loan payments to be deducted automatically from their bank accounts.

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