One-Year Extension of Low Student Loan Interest Rates
UPDATE: Soon, Congress will be passing new legislation that may impact the current one-year extension of low student loan interest rates. Stay tuned to iGrad for an easy-to-understand breakdown of any updates to this extension, as soon as it's been finalized.
Over the last few months, Congress has been debating the fate of student loan interest rates, which were set to double on July 1 from 3.4% to 6.8%, but today Congress signed off on a deal to prevent this increase.
The extension program was projected by the White House to cost an estimated $6 billion and there was a question on how the government planned to fund this. An agreement was reached to cover these costs by decreasing the time period that qualified students can receive a federal subsidy for their student loans, and also by altering certain stipulations pertaining to workers pensions.
IMPORTANT: Although Congress has kept the interest rate on new subsidized Stafford loans at 3.4%, other changes have been made that make federal student loans more costly. The changes are as follows:
No grace period. For subsidized Stafford loans taken out after July 1, the federal government will no longer pay the interest for the first six months after graduation. (The feds will, thankfully, continue to pay the interest on new loans while the undergraduates are still in school.)
What does that mean for the typical college student? Once you graduate, you'll still get six months of breathing room before your first student loan payment comes due. However, the interest that accumulates in that six months will be added to your loan principal.
No subsidized loans for graduate students. It's even worse for students seeking advanced degrees. As of July 1, graduate students are no longer eligible for new subsidized federal loans. That means they'll be responsible for paying the interest that accrues on new federal loans from the very first day they borrow the money. (They also didn't get a break on interest rates in last week's deal, so Stafford loans come with a 6.8% rate. The federal Grad PLUS loans have a slightly higher rate of 7.9%.)
What does that mean for the typical grad student? By one estimate, the end of the federal subsidy will add $7,000 to the cost of the average grad school loan.
- A family now has to have an income of no more than $23,000 to qualify for an automatic zero family contribution on the Free Application for Federal Student Aid (FAFSA), down from $32,000.
- Needy students will be eligible for Pell grants for only 12 full-time semesters. There was no limit before. This sounds reasonable. One smart way to reduce college costs is to earn a degree in four years or less.
For more information, visit the National Association of Student Financial Aid Administrators (NASFAA) website.
Mackenzie Maher graduated in 2010 from the University of California at Santa Barbara with a BA in Global Studies and a minor in Professional Writing, with an editing emphasis. Mackenzie’s diverse portfolio also includes writing, editing, photography, and documentary script writing on such subjects as travel, career, and finance. Next to writing, she is most passionate about world travel (she has visited 24 countries).
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