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Keeping You in the Know: Changes Occurring in the Federal Student Loan Program in 2012

February 22, 2012

In 2012, several major changes are occurring in the federal student loan program. We want to take this opportunity to provide a brief overview of several changes and initiatives that are currently in process or will be occurring later in the year that will have a direct impact on your office and your borrowers.

Special Direct Consolidation Loan Program

  • Effective: January 17, 2012 through June 30, 2012
  • This is a short-term consolidation opportunity for borrowers with at least one student loan held by the Department (a Direct Loan [DL] or a Federal Family Education Loan [FFEL] owned by the Department and serviced by one of the Department’s servicers); and at least one commercially-held FFEL loan (a FFEL loan that is owned by a FFEL lender and serviced either by that lender or by a servicer contracted by that lender).
  • Special Direct Consolidation Loans are intended to help borrowers manage their debt by ensuring all of their federal loans are serviced by the same entity, resulting in one bill and one payment (borrowers repay loans to a loan servicer). Borrowers will also receive an interest rate reduction on Special Direct Consolidation Loans as a repayment incentive.
  • For more information, please visit the Special Direct Consolidation Loan page.

Interest Rates on Direct Subsidized Stafford Loans

  • Effective: New Direct Subsidized Loans first disbursed on or after July 1, 2012
  • Under the College Cost Reduction and Access Act (CCRAA) (Public Law 110-84), signed into law on September 27, 2007, the interest rate on subsidized loans made to undergraduate students under the DL Program and the FFEL Program was reduced in stages from 6.8 percent to the current 3.4 percent that applies to loans first disbursed on or after July 1, 2011, and before July 1, 2012. That reduced rate ends for loans first disbursed on or after July 1, 2012.
  • As a result, the interest rate for undergraduate students on new Direct Subsidized Loans first disbursed on or after July 1, 2012 will be a fixed interest rate of 6.8 percent, the interest rate in place at the time the CCRAA was enacted.  This is the same interest rate that currently applies to Direct Subsidized Loans made to graduate students and to all Direct Unsubsidized Loans.
  • The interest rates on Title IV Federal student loans are set by law and cannot be changed by the U. S. Department of Education (the Department). President Obama, in his State of the Union Address on January 24, asked Congress to enact legislation to extend the current 3.4 percent interest rate for another year. It is important to remember that this is only a proposal at this time. Absent Congressional action, the interest rate will return to 6.8 percent on July 1, 2012, per the statute.
  • For more information, please see Dear Colleague Letter GEN-12-04.

Direct Subsidized Stafford Loans for Graduate/Professional Students

  • Effective: 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 Direct Subsidized Loans.
  • 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.
  • Note that it is the beginning date of the loan period that determines whether a graduate student can receive a subsidized loan, not the first disbursement date. For example, a graduate or professional student could receive a Direct Subsidized Loan for a loan period that begins in June 2012, even if the first disbursement of the loan is made on or after July 1, 2012.
  • For more information, please see Dear Colleague Letter GEN-11-16.

Direct Loan Repayment Incentives/Rebates

  • Effective: Loans first disbursed on or after July 1, 2012
  • The Budget Control Act of 2011 (Pub. L. 112-25) eliminates the authority of the Department to offer any repayment incentives to Direct Loan borrowers to encourage on-time repayment of loans, including any reduction in the interest rate or origination fee.
  • As a result, the up-front interest rebate that has been provided to DL borrowers at the time of loan disbursement will not be offered on any Direct Loan with a first disbursement date that is on or after July 1, 2012. The law continues to authorize the Department to offer interest rate reductions to DL borrowers who agree to have payments automatically electronically debited.
  • For more information, please see Dear Colleague Letter GEN-11-16.

Grace Period Interest Subsidy

  • Effective: New Direct Stafford Loans for which the first disbursement is made on or after July 1, 2012, and before July 1, 2014
  • Public Law 112-74 amended HEA section 428(a)(3)(A)(i)(I) to temporarily eliminate the interest subsidy provided on Direct Subsidized Loans during the six month grace period provided to students when they are no longer enrolled on at least a half-time basis.
  • For more information, please see Dear Colleague Letter GEN-12-01.

Ron Hancock, Nelnet Regional Director

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