Federal Direct Loan Changes
Recent legislation has led to an increase to the cost of borrowing Federal Direct Loans. We have outlined some changes to help you understand the loan terms and conditions before you accept the loan on your award.
Direct Loan Interest Rates
The Bipartisan Student Loan Certainty Act
This Act ties federal student loan interests rates to the 10-year treasury note. This will lower interest rates for borrowers taking out a loan on or after July 1, 2013. This Act re-establishes the interest rates for new Federal Direct Student Loans, moving them from a fixed interest rate of 6.8% for the Direct Unsubsidized Loan and 7.9% for the Direct Parent PLUS loan to a “fixed variable” interest rate that will established be each year on June 1 and effective on July 1 of that year. A “fixed variable” rate means that a new interest rate will be set each year, but the rate will be fixed for the life of the loan for any loans disbursed between July 1 of that year and June 30 of the next year. As a result this may mean that upon graduation a borrower may have a set of fixed-rate loans, each with a different interest rate. The bill also imposes a cap to ensure interest rates never exceed 8.25% for undergraduate students, 9.5% for graduate students, 10.5% for PLUS borrowers.
Time Limitation on Direct Subsidized Loan Eligibility
The Moving Ahead for Progress in the 21st Century Act
This Act added a new provision to the Direct Loan statutory requirements that limits a first-time borrower’s eligibility for Direct Subsidized Loans to a period not to exceed 150% of the length of the borrower’s educational program. Under certain conditions, the provision also causes first-time borrowers who have exceeded the 150% limit to lose the interest subsidy on their Direct Subsidized Loans. More information is available in the Department of Education's document Time Limitation on Direct Subsidized Loan Eligibility for First-Time Borrowers on or after July 1, 2013.
Direct Loan Origination Fees
Budget Sequestration, 2013 (Budget Control Act of 2011)
On August 2, 2011, Congress passed the Budget Control Act of 2011, which put into place automatic federal budget cuts, known as a “sequester,” to take effect if Congress failed to enact legislation to reduce the federal deficit by March 1, 2013. Because Congress did not act, these budget cuts are now in effect. The origination fee structure has changed for all Federal Direct Loans as of July 1, 2013. Direct Loan fees are deducted at the time of disbursement. They are as follows:
Direct Federal Subsidized and Unsubsidized Loan:
| Impacted Stafford Loans | Loan Fee Percent | Fee on a Loan Amount of |
|---|---|---|
| First Disbursed Prior to July 1, 2013 (No Sequester) | 1.00 Percent | $55.00 on a $5,500 loan |
| First Disbursed on or after July 1, 2013 and Before November 30, 2013 | 1.051 Percent | $57.80 on a $5,500 loan |
| First Disbursed on or after December 1, 2013 and Before September 30, 2014 | 1.072 Percent | $58.96 on a $5,500 loan |
| First Disbursed on or after October 1, 2014 and Before October 1, 2015 | 1.073 Percent | $59.01 on a $5,500 loan |
| First Disbursed on or after October 1, 2015 and Before October 1, 2016 | 1.068 Percent | $58.74 on a $5,500 loan |
Direct Federal PLUS Loan:
| Impacted PLUS Loans | Loan Fee Percent | Fee on a Loan Amount of |
|---|---|---|
| First Disbursed Prior to July 1, 2013 (No Sequester) | 4.00 Percent | $400 on a $10,000 loan |
| First Disbursed on or after July 1, 2013 and Before November 30, 2013 | 4.204 Percent | $420.40 on a $10,000 loan |
| First Disbursed on or after December 1, 2013 and Before September 30, 2014 | 4.288 Percent | $428.80 on a $10,000 loan |
| First Disbursed on or after October 1, 2014 and Before October 1, 2015 | 4.292 Percent | $429.20 on a $10,000 loan |
| First Disbursed on or after October 1, 2015 and Before October 1, 2016 | 4.272 Percent | $427.20 on a $10,000 loan |
Subsidized Stafford Loan Grace Period Interest Subsidy
Consolidated Appropriations Act, 2012
Both Stafford Loans (subsidized and unsubsidized) have a grace period during which repayment is not required until six months after the student graduates, withdraws, or is enrolled less than half-time. Previously, subsidized Stafford Loans maintained the interest subsidy during the grace period. The interest subsidy will no longer be provided during the grace period for first disbursements made on or after July 1, 2012, and before July 1, 2014.
New Limit on Eligibility for Subsidized Stafford Loans
Public Law 112-141
A new borrower on or after July 1, 2013 will not be eligible for new Direct Subsidized Loans if the period during which the borrower has received such loans exceeds 150 percent of the published length of the borrower’s educational program. The law also provides that a borrower reaching the 150 percent limit becomes ineligible for interest subsidy benefits on all Direct Subsidized loans first disbursed to that borrower on or after July 1, 2013.
Stafford and PLUS Loan Program Rebate
Budget Control Act of 2011
In the past, borrowers received an up-front rebate on loan fees. The new law eliminates the up-front origination fee rebate on all Stafford and PLUS loans. Stafford Loans will now be assessed the full 1% fee (from 0.5%) and the Parent PLUS/Graduate PLUS Loans will be assessed at 4% (from 2.5%), which will be deducted from each loan disbursement made on or after July 1, 2012.