Termination of Federal Subsidized Loans
Sep 19, 2011 by Joel Laos | 0 Comments
In the face of high debt levels and the threat of defaulting on a number of current obligations, Congress and the President recently passed the Budget Control Act of 2011. The law is an attempt to lower the nation’s total debt while raising the debt limit. There will ultimately be significant budgetary impacts across a variety of national programs, but an immediate effect will be felt in the world of financial aid.
The Budget Control Act will have the following impacts on Denver Seminary students:
- Loss of Interest Subsidy for Graduate Students: The most significant change in financial aid is the loss of subsidized loans for all graduate students. Subsidized loans provided students the opportunity to take out up to $8,500 in loans each academic year that was sheltered from interest while the student was enrolled at least half-time in a degree program. Starting in July 2012, subsidized loans will be eliminated and graduate students will be limited to unsubsidized and PLUS loans through the Department of Education. Other benefits such as deferred payments while enrolled half-time and the six-month grace period for repayment will remain in effect.
- Direct Loan Repayment Incentives: All loans are charged an origination fee up-front. That fee for subsidized and unsubsidized loans is 1% while the fee for PLUS loans is 4%. However, as part of the Department of Education’s Repayment Incentives, the fee was rebated (to 0.5% for sub/unsub and 1.5% for PLUS) and would remain rebated as long as students made their first 12 payments on time. The new law eliminates this rebate, raising origination fees back up to their full amounts.
These changes, along with the rest of the changes to the nation’s budget, are only the first stage of the Act. The law also created a bipartisan committee that is charged with developing legislation that will reduce the deficit an additional $1.5 trillion. Though how this will further affect student financial aid is yet to be seen, it is quite possible that there will be further impacts. We will attempt to keep you updated on any significant changes.
Here are some links to articles with more detail on the Budget Control Act and its effect on financial aid:
Please contact the Financial Aid Office with any questions.