Student Loan Changes for 2012

Student Loan Changes for 2012

A Congressional decision will keep subsidized Stafford loan interest rates at 3.4 percent for one more year.

On Sunday, July 1, several changes to federal student loan programs took effect. If you’re a current or soon-to-be college or graduate student, read on to see if you’ll be affected.

For undergraduate students:

The interest rate on subsidized Stafford loans taken out as of July 1, 2012, will remain at 3.4 percent for one more year. This was a last-minute Congressional decision reached after the interest rate, which was set by law to double to 6.8 percent this year, became a political talking point.

[Read one take on the interest rate debate obscuring other student loan issues.]

But under a temporary provision that lasts until July 1, 2014, holders of subsidized Stafford loans taken this year and next will no longer enjoy an interest-free grace period after graduation. Historically, the federal subsidy extended for six months after a student completed school, meaning students would never pay for the half year of accruing interest.

For the next two years, students with subsidized Stafford loans still won’t have to enter repayment until six months after they graduate, but interest will accrue during that time period.

One potential loophole, however, lies in government repayment programs, including Income-Based Repayment, for students who are eligible, notes Pauline Abernathy, vice president of The Institute for College Access and Success (TICAS), a nonprofit research organization.

“It really underscores the need for students to think about their repayment options and getting into the right repayment plan before they leave school,” Abernathy notes. “If they’re able to get in the right plan, they won’t necessarily accrue any interest during that time period.”

In your last year of school, talk to your financial aid office about government options for students with federal loans, including Income-Based Repayment and Public Service Loan Forgiveness, Abernathy recommends.

Separately, students without a high school diploma or GED (excluding home schooled students) who are enrolling in college for the first time are no longer eligible for federal student aid, including loans. Such students that have already completed some college will still be eligible for federal aid. 

For graduate students:

Graduate students are no longer eligible for government-subsidized Stafford loans. Grad students can still take out unsubsidized Stafford loans, for which interest accrues at a rate of 6.8 percent during school.

[Learn more about Stafford loans for graduate students.]

Even without a government subsidy, federal loans are a graduate student borrower’s best bet, says Abernathy of TICAS. Graduate students with federal loans will be eligible for the government loan repayment programs after graduation, including Income-Based Repayment and Public Service Loan Forgiveness, as well as unemployment deferment.

“Those types of options are not guaranteed and are rarely, if ever, offered by private student lenders,” Abernathy notes. “[The changes] mean that [students] need to choose their programs carefully, particularly if they’re going into public service, to make sure they’re going to qualify for Income-Based Repayment or Public Service Loan Forgiveness.”

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