On August 2, 2011, President Obama signed the Budget Control Act of 2011 into law to increase the nation’s debt ceiling by $2.4 trillion. The law impacted federal student aid by:

  • Eliminating Federal Direct Loan Repayment Incentives for all borrowers.
  • Eliminating the in-school loan interest subsidy for graduate and professional students.

On December 23, 2011, President Obama signed the Consolidated Appropriations Act, 2012. This law impacted federal student aid by:

  • Eliminating the interest subsidy on Federal Direct Subsidized Loans during the six-month grace period after students graduate or are no longer enrolled in school at least half-time. Students do not have to make payments during the grace period (unless you choose to) but any unpaid interest will be added (capitalized) to the principal amount of your loan when the grace period ends.

To help students better understand these changes, the Financial Aid Office has prepared the following list of frequently asked questions.

GRADUATE AND PROFESSIONAL STUDENTS
Elimination Of All Subsidized Stafford Loans

ALL BORROWERS
Elimination Of Federal Direct Loan Repayment Incentives - Up-Front Rebates
Elimination Of Federal Direct Loan Repayment Incentives - Interest Subsidies For Grace Periods

GRADUATE AND PROFESSIONAL STUDENTS: ELIMINATION OF THE IN-SCHOOL LOAN INTEREST SUBSIDY

Historically, undergraduate and graduate borrowers who demonstrate financial need have been eligible to receive subsidized loans, for which the government pays the interest while the student is in school.

What’s Changing: Effective for loans made for payment periods that begin on or after July 1, 2012, graduate and professional students are no longer eligible to receive subsidized loans.. However, if you are a graduate or professional student, you may still qualify for up to $20,500 in unsubsidized loans each year.

Will I receive any Federal Direct Subsidized Stafford Loans for 2012-2013?
Students who enroll in summer 2012 courses may receive a Federal Direct Subsidized Stafford Loan for the summer/fall period if they:

  • Have demonstrated financial need; and
  • Enroll in a session that begins before July 1, 2012.

Will I receive a Federal Direct Subsidized Stafford Loan if I start school in the summer but after July 1, 2012?
No. If you are a graduate or professional student and you start your 2012-2013 academic year in any session that begins on or after July 1, 2012, you will not receive a Subsidized Direct Federal Stafford Loan.

Will the maximum amount I can borrow in the Federal Direct Stafford Loan Program change in 2012-2013?
Annual maximum loan limits under the Federal Direct Stafford Loan Program will not change for the upcoming year. Most graduate and professional students may borrow up to $20,500 for every two semesters of enrollment. Students enrolled in certain health professions programs may borrow more, depending on their program and length of enrollment. For more information about annual loan limits for the Federal Direct Loan Program, please visit our Stafford Loan page.

Do I have to pay the interest while I am in school?
Although interest will accrue from the time the loan is disbursed to your student account, you may defer interest payments while you are enrolled at least half-time. Once you enter repayment, any unpaid interest will be capitalized, or added to the principal of the loan.

How much more will it cost me if I allow the interest to capitalize?
About 95 percent of our graduate and professional students received subsidized student loans in 2011-2012. Students have had access to as much as $8,500 in subsidized student loans. You can expect the average debt upon graduation to increase by an estimated $2,000 to $4,000, depending on the length of your academic program.

Will my existing loans from prior academic years continue to receive an in-school interest subsidy?
Yes. If your old loans received an interest subsidy in the past, they will continue to do so.

ALL BORROWERS: ELIMINATION OF FEDERAL DIRECT LOAN REPAYMENT INCENTIVES

UP-FRONT REBATES
To encourage on-time repayment, the Department of Education introduced the Up-front Interest Rebate for borrowers of Federal Direct Stafford and PLUS loans. For Stafford loans, the rebate equaled 0.5 percent of the loan amount and was applied to the 1-percent loan Origination Fee. For PLUS loans, the Up-Front Interest Rebate equaled 1.5 percent and was applied toward the 4-percent Origination Fee. Borrowers were able to keep the rebate if they made their first 12 payments on time once they entered repayment.

What’s Changing: The Up-Front Interest Rebate has been eliminated for all loans with first disbursements made on or after July 1, 2012.

Will I still receive the Up-Front Interest Rebate for 2012-2013 if I will enroll for the summer 2012 semester?
Students who enroll in a summer session that begins before July 1, 2012, may be eligible to receive the Up-Front Interest Rebate for their summer/fall period only if their loan is disbursed to their student account on or before July 1, 2012.

This means that before July 1, 2012, students should:

  • Have completed a Direct Stafford Loan Request and/or PLUS Loan Request online to borrow the federal student loans available to eligible students/parents;
  • Have submitted all documents required by the Financial Aid Office or the Direct Loan Servicer to determine their eligibility for financial aid;
  • Have maintained financial eligibility for the loan(s) in their Financial Aid Summary Letter;
  • Maintain an enrollment level that matches the enrollment plans indicated on their Financial Aid Summary Letter (e.g. full-time, half-time);
  • Have completed loan counseling for first-time federal student loan borrowers online;
  • Have completed a Federal Direct Loan Master Promissory Note (MPN); and
  • Have received their first loan disbursement before July 1, 2012.

How much more do I have to pay because the repayment incentive has been eliminated?
The Up-Front Interest Rebate is a small percentage of the total amount you borrow. For Federal Direct Stafford Loans it equals 0.5 percent. For Federal Direct PLUS Loans it equals 1.5 percent. As you will see in the table below, when these loans are deposited into your student account, the net disbursement amounts will be a little smaller than last year’s amounts.

Loan Type

Disbursement Amount

Previous Net Amount

New Net Amount

Stafford

$1,750

$1,742

$1,733

Stafford

$2,250

$2,239

$2,228

Stafford

$2,750

$2,737

$2,723

Stafford

$4,250

$4,229

$4,208

Stafford

$6,000

$5,970

$5,940

Stafford

$10,250

$10,199

$10,148

PLUS

$5,000

$4,875

$4,800

PLUS

$10,000

$9,750

$9,600

PLUS

$15,000

$14,625

$14,400

Will I lose the Up-Front Interest Rebate on my existing loans?
No. If you make your first 12 monthly payments on time when you enter repayment, you will keep your Up-Front Interest Rebate. If your account becomes delinquent in your first 12 months, the Up-Front Interest Rebate amount will be added back to the principal balance of your loan.

INTEREST SUBSIDIES FOR GRACE PERIODS:

Historically, the government has paid the interest that accrues on all federal subsidized loans for the first six months after a student graduates or is no longer enrolled at least half-time. The grace period interest subsidy has been available to both undergraduate and graduate borrowers with subsidized loans.

What’s Changing: The grace period interest subsidy will be eliminated for all loans for which the first disbursement is made on or after July 1, 2012, and before July 1, 2014.

Will my loan still receive the grace period interest subsidy if I am enrolling in the summer 2012 semester?
Students who enroll in a summer session that begins before July 1, 2012, may be eligible to receive the grace period interest subsidy for their summer/fall period only if their loan is disbursed to their student account on or before July 1, 2012.

That means that before July 1, 2012, students should:

  • Have completed a Stafford Loan Request Form and Graduate PLUS Loan Request online to borrow the federal student loans included in their Financial Aid Summary Letter;
  • Have submitted all documents required by the Financial Aid Office or the Federal Loan Servicer to determine their eligibility for financial aid;
  • Have maintained financial eligibility for the loan(s) in their Financial Aid Summary Letter;
  • Maintain an enrollment level that matches the enrollment plans indicated on their Financial Aid Summary Letter (e.g. full-time, half-time);
  • Have completed loan counseling for first-time federal student loan borrowers online;
  • Have completed a Federal Direct Loan Master Promissory Note (MPN); and,
  • Have received their first loan disbursement before July 1, 2012.

If I am enrolling in the fall 2012 semester, may I receive my loan before July 1, 2012, to retain the grace period interest subsidy?
No. Federal regulations prohibit USC from crediting any student loan funds to your student account more than 10 days before the start of your enrollment period.

Will I need to make interest-only payments during my grace period?
Although interest will accrue on your subsidized loan from the time you are no longer enrolled at least half-time, you are not required to begin payments for six (6) months. You may defer interest payments while you are enrolled at least half-time. Once you enter repayment, any unpaid interest will be capitalized, or added to the principal of the loan.

Will I still receive the interest subsidy during my grace period for my existing loans?
Yes. If your loans from prior academic years received a subsidy during the grace period, they will continue to do so.

How much more do I have to pay because my loan is no longer eligible for the grace period interest subsidy?
The interest that will accrue during the grace period depends on the balance of the loan and the interest rate. Currently, the interest rate for Federal Direct Subsidized and Unsubsidized Stafford Loans for the 2012-2013 academic year is 6.8 percent for all students (subject to change). The table below illustrates the cost of interest accrual over a six-month period.

Loan Amount Interest Accrued in 6 months at 6.8%

Loan Amount

Interest Accrued in 6 months at 6.8%

$5,000

$170

$7,500

$255

$10,000

$340

$15,000

$510

$20,000

$680
©2012 University of Southern California