On August 2, 2011, President Obama signed into law S. 365, the Budget Control Act of 2011. The legislation ended subsidies on Stafford loans for graduate and professional students for periods of instruction starting after July 1, 2012. Students in degree programs that take lengthy periods to complete (such as dental, medicine, law, and doctoral programs) will be hardest hit. The deletion of subsidies for graduate and professional students will have a significant impact on all graduate students, but will probably prove most burdensome for students from low-income backgrounds.
Subsidized interest on Stafford Loans will be eliminated. While unsubsidized loans are still available, students should be aware that interest will start to accumulate while they remain in school. Under the previous system, as long as the student was going to school part-time, interest did not accrue. The loans also offered a six-month grace period immediately following graduation.
Although Federal Stafford Loans will continue to carry a 6 month Grace period, there will be no interest subsidy on new Stafford Loans effective July 1, 2012.
The bill eliminates the interest subsidy on subsidized student loans for almost all graduate students while a borrower is in school, in the post-school grace period, and during any authorized deferment period. The current annual and cumulative loan limits for unsubsidized loans will be adjusted to permit students to borrow additional funds in the unsubsidized loan program.
The bill terminates, with one exception, the Secretary of Education’s authority to make incentive payments to borrowers to encourage on-time repayment of federal loans. Specifically, the bill will eliminate the Secretary’s authority to offer a partial rebate of the origination fee but will still allow the current interest rate reduction for borrowers who agree to repay their loans through electronic debiting.
The Congressional Budget Office states that by removing the subsidized loan program for graduate and professional students and eliminating certain loan repayment incentives, direct spending will be reduced by about $21.6 billion from 2012 to 2021. Of that amount, $17 billion will be put toward the Pell Grant program.