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Federal Student Aid

Congress Maintains 3.4% Interest Rate for Undergraduate Subsidized Loans

After considerable advocacy from students nationwide, Congress passed a bill at the end of June that keeps the interest rate for federally-subsidized loans to undergraduates at 3.4 percent until July 2013.

The interest subsidy on loans for undergraduates still in school will be limited to a period of 150 percent of a program's standard completion time. For example, a student pursuing a degree at a four-year college will no longer be eligible for an interest subsidy after six years. Also, the government will no longer cover the interest on undergraduate loans during the six months after students finish school.

The extension of the low interest rate will have a modest impact on student debt. It applies only to new, federally-subsidized student loans to undergraduates, which are based on student income levels. More than seven million students receive those types of loans, and the interest-rate freeze will save the average borrower $7 to $9 a month, or about $1,000 over the course of repayment.

As of July 1, 2012, graduate students will no longer qualify for the in-school subsidy on federal loans. The interest rate for those loans will remain at 6.8 percent, and students will be responsible for paying the interest while they are in school.

Updated July 2012

Advocate to Prevent Changes in Federal Student Loans

The 2012-2013 school year will see substantial changes in federal student loan policies, primarily affecting the Stafford loan program and graduate student loans. The Higher Education Act of 1965 provided millions of students an affordable means of financing their college education through low-interest loans from the Department of Education.

Subsidized Stafford loans are determined by a student’s school and based on financial need. In 1997, Congress reduced the interest rate on subsidized Stafford loans from 6.8% to 3.4%, in an effort to make college more affordable and reduce student debt. Now, this law is set to expire, doubling the interest rate back to 6.8% starting July 1st. In addition, the 6-month grace period will be removed for Stafford loans taken out for the next academic year. This means that interest will begin accruing on these loans the moment you graduate.

Students undertaking graduate work should also expect changes in their interest rates. The subsidized Stafford loan (up to $8,500) will no longer be available for graduate students. As of July 1st, the maximum annual loan amount of $20,500 can be borrowed using only unsubsidized loans. With the end of the subsidized graduate student loan, interest will accrue throughout graduate work at the rate of 6.8%.

These changes will have an impact on the amount of debt that a student will have after graduation. This will result in an average of $5,000 in additional debt for students who are scheduled to pay their loans back in 5 years, and $11,000 for those who pay back over 10 years.

Students across the country are petitioning Congress to prevent the interest rate on federal student loans from doubling and to reinstate subsidized graduate student loans. Please make your voices heard on these issues. Click on the links below to sign the petitions.

Updated April 2012