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The Budget Control Act of 2011 which was recently passed by the federal government will have several consequences for students pursuing a degree at the MSU College of Law.  Listed below you will find the two areas which will be of interest to any students receiving a federal Stafford or GradPLUS loan:

  1. Elimination of the interest subsidy for subsidized Stafford Loans effective for new loans 7/1/12. Students may still borrow up to $20,500 in Stafford Loan but the loan will now be completely unsubsidized.  The interest on a subsidized Stafford Loan has traditionally been paid by the federal government while a student was enrolled half-time or more, and during deferment and grace periods.
  2. Elimination of the Direct Loan rebate for all Direct Loans (subsidized, unsubsidized and GradPLUS) effective for new loans 7/1/12.  Currently, there is a 1% fee on each Stafford and a 4% fee on each Graduate PLUS loan, but a portion of the fee is rebated at the time of disbursement, so the student effectively loses only 0.5% on Stafford and 2.5% on PLUS.

An additional proposal appears eliminate the .25% interest rate reduction for auto-debit payments effective for new loans 7/1/12.  The benefit is available when students are in repayment so essentially all students currently receiving a Stafford or GradPLUS will be excluded from the benefit.  However, the language of the legislation is not clear about whether the benefit MAY be offered at the Secretary’s discretion or whether it will be modified or completely removed.

Please note that the changes take effect on July 1, 2012 and do not impact loans made for the fall and spring of 2011-12.

The effect of these changes will be increased indebtedness for many students.  I would like to take this opportunity once again to encourage you to review your expenses and reduce your borrowing from federal (and any private loans) you may be receiving for 2011-2012.  You may still reduce loans for 2011-12 with the option of reinstating loan(s) later in the year.

As I receive further details about these changes I will notify you.

If you have any questions then please contact me at garcia11@law.msu.edu or 517-432-6810.


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