The Federal Budget Control Act of 2011 to Make Student Loan Borrowing More Costly

President Obama signed the Budget Control Act of 2011 into law on Aug. 2 to increase the nation's debt ceiling by $2.4 trillion. The law will impact Purdue student aid by:

• Eliminating the in-school loan interest subsidy for graduate and professional students. During 2010-11, 1,880 graduate and professional students received Federal Subsidized Stafford Loans.  The subsidy on loans processed on or after July 1, 2012, will no longer be available to graduate and professional students.   

The National Association of Student Financial Aid Administrators has provided an example on what this means for the cost of borrowing.  A graduate student who borrows $8,500 of Subsidized Stafford Loans each year for four years, or $34,000 total, would accumulate $4,624 in interest during that time.  Under the standard 10-year repayment plan, the student would pay a total of $46,953 for that $34,000 loan if the interest were subsidized; if not, the loan would cost $53,338, or a difference of $6,385. 

• Eliminating Direct Loan repayment incentives.  The Department of Education assesses fees on each federal loan it originates but currently offers a rebate on the upfront fee.  While in repayment, students will have to pay the initially rebated amount if they fail to make 12 on-time consecutive payments.  Effective July 1, 2012, rebates will no longer be offered upfront.  Students will not lose the ability to receive a .25% interest rate reduction by setting up automatic electronic debits during repayment. 

For example, for every $1,000 of Stafford Loans borrowed, the origination fees will be $10 (1%).  Prior to July 1, 2012, the fees are $5 (0.5%).  

Graduate students and parents that borrow PLUS Loans will pay fees of $40 (4%) per $1,000 borrowed, compared to $25 (2.5%) of fees now.