Student loan changes you don’t know about

The deal Congress approved today to freeze the interest rates on “Stafford” subsidized federal student loans is getting a lot of ink today. But there are other changes coming this fall to the student loan game that could be a similar big deal.

The Student Loan Network blog today writes:

Starting July 1, there are a handful of other updates to federal loan programs that borrowers should be aware of. These changes will not affect loans that were originated before July 1, only loans originated for 2012-2013.

No more subsidized loans for grad students. Just like undergraduates, graduate students were previously able to receive both subsidized and unsubsidized loans. Starting this year, only unsubsidized loans will be available for grad. students at a 6.8% interest rate.

Elimination of interest subsidy for grace periods. Subsidized Stafford Loans were less expensive than there unsubsidized counterparts because 1) the interest rate was lower and 2) interest was subsidized while enrolled in school and durning the 6 month grace period after leaving school. Starting this year, there will be no interest subsidy during grace periods, however, the subsidy will still exist while enrolled in school at least half-time.

Decreased eligibility. Last December, President Obama signed the Consolidated Appropriations Act 2012, which brought with it a change to the Pell Grant Program for the 2012-2013 year. Starting in Fall 2012, the Pell Grant is limited to 12 full-time semesters per student. The way this is calculated is by percent, where 600% is the maximum a student is eligible for. For example, if you receive a maximum Pell Grant for both semesters, your percentage used would be 100%.

Lowered income limit for automatic zero . When families file the FAFSA (Free Application for Federal Student Aid), they receive their Expected Family Contribution (EFC) – a number detailing how much of the school costs a family should be able to provide out of pocket. In previous years, anyone with an income of $32,000 or less received an automatic zero for the EFC. This allowed lower income families to be eligible for more need-based aid. This year, the income limit has been reduced to $23,000, which will cut funding for many students.

Termination of repayment incentives. The Department of Education can no longer offer repayment incentives to Direct Loan borrowers, except an interest rate reduction for auto payment. Again, this is only for loans originated after July 1, 2012 — Repayment incentives may still be available for older loans.

The decreased eligibility seems worrisome given the economy and the financial troubles of many low-income families. What good is a better interest rate if you can’t get the loans you need?

– Paul Tosto

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