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Graduate Student Loans

Graduate Student Loan Changes Beginning 2012-13

Congress recently passed the Budget Control Act of 2011, which included two changes that will increase the cost of borrowing Federal Direct Loans for graduate students.  The changes go into effect on July 1, 2012 and affect all Federal Direct Loans for graduate students for the 2012-13 academic year and beyond.

Elimination of the Interest Subsidy (Subsidized Federal Direct Stafford Loan)

  • $20,500 will remain the maximum annual Federal Direct Stafford Loan for most graduate students.  The interest rate remains 6.8% per year.  Accrued interest will be added to the principal balance when you enter repayment, six months after you graduate or leave school. What is changed is that the federal government will no longer pay the interest on (subsidize) the first $8,500 of the loan while you are in school and during the six-month grace period.  The increased cost will be based, of course, on how long you are in school and how much you borrow.
  • This does not affect loans that you have already received.  Subsidized Federal Direct Loans received before July 1, 2012 will retain the in-school subsidy. (Please Note: We cannot award 2012-13 loans early to beat this deadline.)
  • This does not mean that you must or should make early interest payments to the federal loan servicer while you are in school.  Because accrued interest is added only once - at time you enter repayment - the interest is "simple", not "compound", and you will not be accruing interest on interest while you are in school.
  • The best way to minimize the impact of this change is to borrow conservatively by:
    -Keeping your costs as low as reasonable
    -Borrowing the minimum you think you need.  If you have borrowed more than you need, you may contact the Financial Aid office to decrease the amount of your loan, however your request must be submitted before the end of the academic year.
    -Aggresively pursuing aid from other sources (fellowships, departmental aid, employment, etc.)

Elimination of Repayment Incentives

  • The new law also eliminates the up-front origination fee rebate on all Federal Direct Loans and Federal Direct Grad PLUS Loans.  There is a 1% origination fee on all Federal Direct Stafford Loan disbursements ($10 per every $1,000), and a 4% origination fee ($40 per $1,000) on every Federal Direct Grad PLUS Loan disbursement.
  • Before July 1, 2012 you received an immediate .5% rebate of the 1% origination fee for all Federal Direct Stafford Loan disbursements, meaning that only $5 was deducted per $1,000; and you received an immediate 1.5% rebate of the 4% origination fee for all Federal Direct Grad PLUS Loan disbursements, meaning that only $25 was deducted per $1000. This rebate was an incentive for students who made timely payments after graduating.
  • Beginning July 1, 2012 the origination fee rebate is eliminated and the full 1% origination fee will be deducted from all Federal Direct Stafford Loan disbursements ($10 per every $1,000), and the full 4% origination fee ($40 per $1,000) will be deducted from every Federal Direct Grad PLUS Loan disbursement.


The basis of a graduate financing plan is often through federally guaranteed loans. The programs available include  the Federal Unsubsidized Stafford Loan, and the Federal Graduate PLUS Loan. Each of these loans requires an application.

  • Federal Unsubsidized Stafford Loan - Federal Unsubsidized Stafford Loans are not based on need. This loan is available to all US citizen and eligible noncitizen students, regardless of income. A borrower may have a Subsidized and an Unsubsidized Stafford loan, although the combined total may not exceed $20,500 per year. Interest rates are the same as the Stafford Loan. This loan has interest that accrues from the date of the disbursement of loan proceeds. Interest payments may be deferred while students attend school. Interest can be paid or may be added to the principal by your lender at your request (this is called capitalization of interest). Repayment of the principal commences six months after completion of studies.

  • Federal GRAD PLUS Loans – GRAD PLUS Loans are federally guaranteed and need is not a factor. GRAD PLUS is available to graduate students for up to the total cost of education minus aid. The current interest rate is fixed at 7.9%. There is a 2.5% origination/insurance fee. Repayment begins 60 days after receipt of the loan proceeds with up to ten years to repay. Interest and principal may be deferred in some circumstances. A credit analysis is required. Approval is based solely on good credit-income and personal debt are not factors in determining loan approval.

Repayment of Federal Student Loans
Repayment of Federal Direct Subsidized and Unsubsidized Loans begins six months after graduation or when a student drops below half-time enrollment.  The length of repayment and monthly payment amounts depends on the outstanding loan balance, the interest rate, and repayment policies.  Federal Direct Unsubsidized Loan borrowers with deferred interest will have the interest capitalized at the end of the inschool or grace period.

The lender for the Federal Direct Loan Program is the Federal Government.  Their contact information is :
U.S. Department of Education
Borrower Servicing Department
Direct Loan Servicing Center
P.O. Box 4609
Utica, New York 13504-4609
Telephone:  1-800-848-0983
(Note: You will need your federal Personal Identification Number (PIN) to access this site.)


For loans repayable in monthly installments, borrowers will be declared in default after 270 days of not making scheduled payments (for loans repayable in less frequent installments, borrowers will be declared in default after 330 days of not making scheduled payments).  If you default on a Federal Direct Subsidized or Unsubsidized Loan and the servicer is unable to collect, it will harm your credit rating and the federal government may take action to recover the loan.  You cannot receive further aid if you are in default status.