July 1 was an important date for many student borrowers. Key changes to student aid programs include:
1. New students without high school diplomas or GEDs will no longer be eligible for federal aid. (There is an exception for students who were home schooled).
2. Congress agreed at the last minute to keep the fixed interest rates for new subsidized student loans at 3.4%. Be advised that this rate applies only to subsidized Stafford loans and that the lower rate is in effect for only one more year. Congress can act before interest rates are again scheduled to rise, but the question is how to pay for it.
Congress paid for another year of lower interest rates this time in part by creating new eligibility restrictions, including a new time limit on eligibility for subsidized loans. There is also concern that Congress is using funds designated for Pell grants in order to keep the interest rates on subsidized loans at the lower rate for another year.
We hope going forward that the debate will expand beyond just interest rates. The interest rate issue became a hot political issue this year. While keeping interest rates low helps many borrowers, it is far from enough to help struggling students.
3. New subsidized Stafford loans issued in 2012-13 will accrue interest during the six month grace period after students leave school. This is also true for loans issued in 2013-14. The government will still pay interest during grace periods for subsidized loans issued before July 1, 2012 and the subsidy is scheduled to return for loans issued on or after July 1, 2014.
4. As of July 1, 2012, graduate and professional students are eligible only for unsubsidized Stafford loans.
For more information, see this helpful summary sheet from the Project on Student Debt. The Department of Education also published detailed information about interest rate calculations for July 2012-2013.
The courts have also been part of the student aid action lately. Most important, a federal district court judge issued a ruling that calls into question a major component of the new gainful employment rule. The court upheld most of the rule and affirmed the Administration’s authority to regulate in this area. However, the court also ruled that the Department of Education failed to provide sufficient evidence to support the repayment criteria that programs must meet in order to remain eligible for federal aid funds.
Stay tuned for next steps including a possible government appeal, new rulemaking, or moving forward with a revised (even more watered down) rule.
We agree with Kevin Carey in his New America blog urging the Department not to back down in the gainful employment fight. (Speaking of Kevin Carey, we recommend listening to his recent NPR appearance, highlighting the need for changes in the higher education sector).
State law enforcement has also been active lately, including a multi-state agreement shutting down a website called GIbill.com. The military-themed website collected contact information from veterans interested in using their post-service benefits for higher education and passed the information to colleges. In announcing the settlement, Kentucky Attorney General Jack Conway said the site gave the misleading impression that it was run by the U.S. government. The site, operated by QuinStreet Inc. will be turned over to the U.S. Department of Veterans Affairs as part of the agreement. The company will also pay a $2.5 million fine, and include prominent statements on its other veteran-focused websites that it has no government associations.
