Elimination of Federal Student Loan Interest Subsidy FAQ

How do changes to Direct Stafford Loans impact graduate and professional students?

Recent legislation resulted in two changes for graduate and professional Direct Loans. The first involves the loss of subsidized loan eligibility, which means interest accrues on loans while still in school. Second, borrower repayment incentives have ended. As a result, no up-front interest rebates will be offered.

When does the graduate loan subsidy change take place?

The change applies to loans made for graduate and professionals students for periods of enrollment beginning on or after July 1, 2012.

How will this affect my overall loan limits, both annually and aggregately?

The annual Stafford Loan limit for graduate and professional students remains $20,500 (more for certain health-professions students). The aggregate Stafford Loan limit also stands unchanged at $138,500 (more for certain health-professions students). The Graduate PLUS Loan will still be offered up to the cost of attendance for students who qualify for the loan.

Why are these changes taking place?

The Budget Control Act of 2011, signed into law on August 2, 2011, calls for immediate cuts to federal student aid programs. In order to protect the Pell Grant program for the neediest undergraduate students, Congress eliminated the subsidy for graduate and professional students and used that savings to boost the Pell Grant program that was operating with an $18.3 billion shortfall. The act also terminated the Department of Education's ability to offer any repayment incentives to Direct Loan borrowers.

Will this affect the previous subsidized loans I have already received?

The Budget Act is not retroactive. The current subsidized loans received by graduate and professional students will remain so, in accordance with the terms of the loan's promissory note.

How much interest will I have to pay for the unsubsidized loan?

The Unsubsidized Direct Loan has a fixed interest rate of 6.8 percent. Because interest begins to accrue upon loan disbursement and while the student is still in school, the total loan will increase by the time a student starts repayment. The amount of the increase depends upon the total amount borrowed and the length of the student's graduate or professional program.

Does the Budget Control Act of 2011 change when I have to start repaying the loan?

Although interest begins to accrue immediately, graduate and professional students still have the options of deferring payment of their loans until after graduation. In most cases, students do not have to begin repayment of their loans until six months after graduating or until ceasing to be enrolled at least half time. We encourage our students to make quarterly interest payments as an effective strategy to decrease the total loan debt by the time of repayment.

If you have any questions, please contact Ms. LaNae Herrera, Director of Financial Aid, at financialaid@iwp.edu or 202-462-2101 x315.