If you have student loans or are planning to go back to school any  time soon then pull up a chair.  While one of the changes look good on the surface, the others have far reaching financial consequences for millions of borrowers.

Long gone are the days when we could decide to go back to school on a whim and borrow money from the government to do so without concern for the repayment period, interest rates and/or repayment incentives.  Times are rough and Uncle Sam wants his money now.  Not 6 months after graduating – now.

In a nutshell, these are the changes that that will go into effect as of July 1, 2012

  • Interest rates:  The House passed an extension of the current student loan rate which currently stands at 3.4%.  Without this extension, the rate would have doubled, affecting roughly 7 million borrowers.
  • Subsidized Loans:  Graduate and professional students are no longer eligible for subsidized loans through the Direct program.  This means that the interest on all graduate Direct student loans will accrue during your time in school.  Undergraduate loans will continue to reap the benefit of subsidized loans which means no interest is accrued during this time.  Still, you may still qualify for up to $20,500 in unsubsidized loans each year if you are a graduate or professional student.
  • Grace Period:  Direct subsidized loans are no longer eligible for the 6 month grace period.  These loans are now going into repayment immediately after you graduate or drop below full time status.  The latter is especially important for those in professional programs which require internships or time in dissertation.  Talk to your graduate program to see how this is handled as some programs will report you as full time to avoid this issue while others will report you has below half time triggering repayment.
  • Repayment Incentives:  Loans disbursed on or after July 1, 2012 will no longer be eligible for repayment incentives except interest rate deductions to those who choose to have payments electronically drafted from their bank accounts.

Consider carefully your decision to return to school and whether you will be able to manage the new changes.  Keep in mind that there is a possibility that the current rates can go up in 2 years as the interest rate abatement remains on the books through July 1, 2014.

Do the new changes affect your plans to return to school?  Why or why not?

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