Direct Loan Policy for 2012-2013

The Budget Control Act (BCA) of 2011 (Pub. L. 112-25) was signed into law on August 2, 2011. This Act makes two changes to the William D. Ford Direct Loan (Direct Loan) Program, as discussed below.

I. Loss of Subsidized Loan Eligibility for Graduate and Professional Students

• Effective for loans made for periods of enrollment (loan periods) beginning on or after July 1, 2012, graduate and professional students are no longer eligible to receive Federal Direct Subsidized Loans.
• Under the new regulation, borrowers will start owing interest immediately on loans issued after July 1, though they will have the option of deferring payments until they finish school.
• The terms and conditions of Direct Subsidized Loans received by any student for loan periods beginning before July 1, 2012, for either graduate or undergraduate study, are not affected by this change.
• The annual loan limit for graduate and professional students remains unchanged, but this amount will now be limited to Direct Unsubsidized Loans, as shown in the following chart:
   
  

• The aggregate loan limit for graduate and professional students remains unchanged at $138,500 ($224,000 for certain health professions students), not more than $65,500 of which may be in subsidized loans.
• The elimination of subsidized loan eligibility for graduate and professional students does not affect undergraduate student borrowers, who remain eligible to receive Direct Subsidized Loans.

II. Termination of Direct Loan Borrower Repayment Incentives

• With one exception as noted below, the Budget Control Act of 2011 terminates the authority of the Department of Education (the Department) to offer any repayment incentives to Direct Loan borrowers to encourage on-time repayment of loans, including any reduction in the interest rate or origination fee, effective for loans first disbursed on or after July 1, 2012. As a result of this change, the up-front interest rebate that has been provided to Direct Loan borrowers at the time of their loan disbursement will no longer be offered on any Direct Loan Program loan with a first disbursement date that is on or after July 1, 2012.
  

The law continues to authorize the Department to offer interest rate reductions to Direct Loan borrowers who agree to have payments automatically electronically debited from a bank account.