Much attention is currently focused on the impending increase (or doubling) of the student loan interest rate on Federal Direct Student Loans. The increase is scheduled to take effect on July 1, 2012 and will only pertain to undergraduate Federal Direct Student Loans which currently carry an interest rate of 3.4%. This means that, effective, July 1st, they will carry an interest rate of 6.8%. There is the possibility that Congress will vote to extend the current 3.4% rate but there is no way to predict how this will play out.
On another note, effective July 1, 2012, the interest rate subsidy for graduate students will disappear. This means that interest will accrue on all of the Federal Direct Student Loans from the date they are originated until they are paid in full. This is just one more reason to not borrow more than YOU need to cover your educational costs. Remember, these loans are no bargain …………….. the Federal Direct Unsubsidized loans accrue interest at 6.8% and the Federal Direct Grad-Plus loans accrue interest at 7.9%. This change in legislation could effectively cost you almost $6,000+/- more over the life of your student loans.
This is also not a reason to utilize private loans. While they may appear attractive due to (currently) lower interest rates, they provide no protection in the case of permanent/total disability or death, etc., and they are NOT eligible for loan consolidation and/or the possibility of Public Service Loan Forgiveness.
We will keep you posted on more issues surrounding student loans in the very near future.
Mary B. W. Fenton, M.A.
Director of Student Financial Aid Services
for the Health Sciences Center
University of New Mexico Health Sciences Center