2012–13 Direct Loan Program Updates

Fact Sheet Summarizes Changes to Stafford and PLUS Loan Programs

The Budget Control Act of 2011

The Budget Control Act of 2011 was signed into law on August 2, 2011. This Act makes two substantial changes to the Direct Loan Program effective July 1, 2012.

Loss of Subsidized Loan Eligibility for Graduate Students – Effective for loans made for period of enrollment beginning on or after July 1, 2012, graduate students will no longer be eligible to receive Federal Direct Subsidized Loans. The annual loan limit for graduate and professional students will remain unchanged, but this amount will now be limited to Direct Unsubsidized Stafford Loans. *Note: Undergraduate Students are not affected by the termination of Subsidized Loans

Termination of Direct Loan Borrower Repayment Incentives – With one exception as noted below, the Budget Control Act terminates the authority of the Department of Education to offer any repayment incentives to Direct Loan borrowers to encourage on-time repayment of loans, including any reduction in the interest rate or origination fee, effective for loans first disbursed on or after July 1, 2012. As a result of this change, the up-front interest rate rebate that has been provided to Direct Loan borrowers at the time of their loan disbursement will no longer be offered on any Direct Loan Program loan with a first disbursement date that is on or after July 1, 2012. *Exception: The law continues to authorize the Department of Education to offer interest rate reductions to Direct Loan borrowers who agree to have payments automatically electronically debited from a bank account.

The Consolidated Appropriations Act of 2012

The Consolidated Appropriations Act of 2012 (Public Law 112-74) was signed into law on December 23, 2011. This Act makes one substantial change to the Direct Loan Program that will affect students beginning July 1, 2012.

Grace Period Interest Subsidy – Public Law 112-74 amended the Higher Education Act of 1965 section 428(a)(3)(A)(i)(l) to temporarily eliminate the interest subsidy provided on Direct Subsidized Loans during the six-month grace period provided to students when they are no longer enrolled on at least a half-time basis. This change is effective for new Direct Stafford Subsidized Loans for which the first disbursement is made on or after July 1, 2012, and before July 1, 2014.

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