On July 1, 2012, many changes to the Federal Direct Loan program took effect. While the talk of the increase in interest rates has been discussed on whatever news source you choose to access today, other changes are set to take place, as well, that might take many student’s by surprise.
The Direct Subsidized Loan for Undergrad Students
The biggest change that is set to take place on July 1, for the Direct Subsidized Student Loan (or Sub Loan as people in the Financial Aid business might call it), is the increase in the interest rate. Currently, the interest rate for the Sub Loan is 3.4%. This is on all Sub Loans that are first disbursed prior to July 1. Any Sub Loan that is first disbursed after July 1 is now going to be at an interest rate of 6.8%!
Don’t think that if you started school prior to July 1 you’re locked in at the previous interest rate and safe from the high interest bad dream. A school has to certify or award, new student loans for every new award year.
For example: let’s say you started school in the fall of 2011. You were awarded the Sub Loan for the fall 2011 and spring 2012 semester. That loan was at the 3.4% interest rate. Now you are going back to school this fall for your sophomore year. The school will have to set up and certify a new Sub Loan for you. That loan is going to be at the new rate of 6.8%.
Another big change that many people don’t know about is the change of when the interest starts to accrue on the Sub Loan. Currently, the Sub Loan has no interest accumulate while you are at least going to school half-time. Once you graduate, interest still doesn’t accumulate during the 6 month grace period after your last day of school. Even though you are not required to make payments during your 6 month grace period, this has always been a nice way to get ahead on your student loan debt before any interest started to kick-in.
After July 1, interest will still not accumulate while you are at least going to school half-time but once you graduate interest does kick-in on the Sub Loan. You still get your 6 month grace period but know that interest is accruing!
The Direct Subsidized Loan for Graduate Students
Even Graduate students are subject to some changes to the Subsidized Loan program. Grad students have an annual limit of $20,500. Prior to July 1, eligible Grad students were allowed to take out $8,500 of that $20,500 in the Sub Loan. Starting on July 1, any Grad student that has a Loan Period starting at that time will no longer be eligible for any of their $20,500 to be Sub Loans. All of their Direct Loans will now be in the Unsubsidized Loan. It’s important that you check with the Financial Aid office at your school so they can let you know all the facts about your Grad Loan.
What can a Student or Parent Do?
Even with all these changes to the Direct Lending program, there is still hope.
Just because the Federal Government is increasing your rates, doesn’t mean the banks and lending institutions are raising their rates on private student loans. A quick search of some of the major banking institutions showed ranges in interest rates on personal student loans from 2.25% up to 9.88%. While you are subject to a credit check when it comes to borrowing a personal student loan, you can often apply with a credit worthy co-signer. Some of the banks offer different types of personal student loans that fit your needs and even have some just for parents or other family members to apply for. It’s always smart to talk to the lending institution first and to do some research into the loan before you finalize anything.
You should also talk to the Financial Aid officers at your campus to see if they can offer any suggestions. They can give you important information on your student loans and let you know which of your federal student loans are subject to the changes listed above. It’s also good to ask if your college offers any financing options. Sometimes these can be a better alternative to high interest student loans.
The most important thing to do is make sure you are doing what is best for you financially. You have enough to think about without worrying about how you are going to pay for school. Just like the Federal interest rates, college has its ups and downs so having a good plan on how you are going to pay for school will give you one less thing to have to study!