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How Your Financial Aid Will Change in 2012

Mar 9, 2012 Jennifer Williamson, Distance Columnist | 0 Comments

In 2009, President Obama signed the Economic Reinvestment Recovery Act, which broadened access to student loans across the board—boosting Pell Grant funding, eliminating bank subsidies, and expanding Perkins loan eligibility, as well as implementing an Income-Based Repayment program designed to make the student loan burden easier for low-income or unemployed graduates to bear.

However, in 2011, those debt-deal expansions came under fire by Republicans set on reducing the national debt. President Obama had to make some compromises to raise the national debt ceiling—and some of the funds on the chopping block directly affected student borrowers.

The federal student loan environment isn’t as rosy for 2012 as a result.Here are just a few ways lending to students will change in the coming year.

Student loan interest rates will jump

Woman and Paperwork

There’s no question the federal government is tightening its belt as a result of political tides connected to the recession—and students and recent graduates will feel the pinch this year.



In July 2012, subsidized Stafford loan interest rates are slated to double—from 3.4% to 6.8%. This is already the rate of interest for unsubsidized Stafford loans, and that rate will stay where it is.

Graduate students can’t get subsidized Stafford loans

As part of the deal he struck with Republicans to raise the federal debt ceiling, President Obama permitted the elimination of subsidized Stafford loans for graduate students. This means that for grad students who are still in school, student loans will still accumulate interest from the moment the loan is taken out—instead of starting after graduation.

Interest for undergraduate subsidized Stafford loans will start after graduation

For loans made on or after July 1, 2012, the federal government will also stop paying the interest on subsidized Stafford loans for undergraduate students in the six-month grace period between graduation and the time when students must start paying back their loans. This means interest will start accumulating directly after graduation for undergrads, not after the grace period.

Pell Grant eligibility will tighten

The amount of the full Pell Grant award won’t go down in 2012—it will stay at $5,550. But fewer families will qualify for 2012. Currently, families can qualify for the full Pell Grant amount if they earn as much as $30,000—or less. But starting in the 2012-2013 school year, only families who earn $23,000 per year or less will qualify. In addition, students will only be able to receive the Pell Grant for up to 12 semesters—not as much as 18, as is under current law.

Ability-to-benefit students will no longer receive federal aid

Students who do not have high school or GED diplomas can enter college by passing an Ability to Benefit test. These students currently qualify for Title IV federal aid. Under the new laws, however, they will no longer qualify. 

Income-based Repayment will be a slightly better deal

Under current law, students who qualify for Income-Based Repayment plans have their loan repayments capped at 15% of their discretionary earnings. In 2012, that cap is planned to be reduce to 10%. In addition, students who pay their loans consistently will receive total forgiveness after 20 years, not 25 as under current regulations. However, the government has not yet announced the exact dates for this change.

There’s no question the federal government is tightening its belt as a result of political tides connected to the recession—and students and recent graduates will feel the pinch this year. Hopefully, as the economic condition of the country improves, the government will loosen restrictions on federal student aid that hurts family budgets—and refocus on making college more affordable for all.


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