Hi Heather,

You wrote the recently passed Budget Control Act involves:
“Elimination of Direct Loan “repayment incentives” (reduction in interest rates for on time payments) for new loans disbursed on or after July 1, 2012.”

Will loans disbursed before July 1, 2012 still qualify for the repayment incentives?  And does this apply for Direct consolidated loans?

Also, is there anything else in this Act that will effect borrowers with disbursements before 7/1/12?

Thank you!

The repayment incentive eliminations are kind of weird.  Previously, the Secretary of the Dept of Ed was authorized to promulgate certain repayment incentives, including interest rate reductions, for on-time monthly payments.  The Secretary no longer has the authority to do that for loans disbursed on or after July 1, 2012.  This will do away with an “origination fee rebate” for Stafford and Grad PLUS loans.  Currently, there is a 1% fee on each Stafford and a 4% fee on each Graduate PLUS loan, but a portion of the fee is rebated at the time of disbursement, so the student effectively loses 0.5% on Stafford and 2.5% on PLUS.  Beginning July 1, 2012, the full fee will be charged.  The Secretary will retain the authority to grant interest rate reductions for borrowers choosing automatic electronic debits.

Nothing in this Act affects student loans disbursed before July 1, 2012.

Hi Heather,

Just to be clear, any subsidized Stafford disbursed before 7/1/12 will remain subsidized while a student is in school and during the grace (even after 7/1/12?)!? How about during other types of deferments post 7/1/12 (economic hardship, unemployment, students who return to school…in-school deferments)?

Thanks!

Best,
Jon

Yes, that’s right.  What will happen is that graduate and professional students will no longer be eligible to apply for Subsidized Staffords that would be disbursed on or after July 1, 2012.  If you have one from before that date, it will continue to be the same Subsidized Stafford loan and the subsidy will be as usual.  There are no changes to deferments in the Budget Control Act.

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