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Federal Direct Student Loan Program Changes

Federal Student Loans for Graduate and Professional Students 

The Budget Control Act (BCA) of 2011 was signed into law on August 2, 2011.  This act makes two changes to the Federal Direct Loan Program.

Loss of Subsidized Loan Eligibility for Graduate and Professional Students.

Effective for loans made for periods of enrollment (loan periods) beginning on or after July 1, 2012, graduate and professional students are no longer eligible to receive Federal Direct Subsidized Loans. The terms and conditions of Direct Subsidized Loans received by any student for loan periods beginning before July 1, 2012, for either graduate or undergraduate study, are not affected by this change.

The annual loan limit for graduate and professional students remains unchanged at $20,500 ($47,167 for students in certain health professions), but this amount will now be limited to Direct Unsubsidized Loans, as shown in the following chart:

Termination of Direct Loan Borrower Repayment Incentives 

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 payment 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 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 (this includes Direct PLUS/Grad PLUS Program).

The law continues to authorize the Department to offer interest rate reductions to Direct Loan borrowers who agree to have payments automatically electronically debited from a bank account.

No changes have been made to the variety of repayment plans and options open to borrowers.

Undergraduate students are not affected by the termination of subsidized loans.