Subsidy on Federal Direct Subsidized Loans in Grace Period Returns
and Updated Addendum to Entrance Counseling Guide for Direct Loan Borrowers
Where does time go? It seems like only yesterday we were talking about the nation’s Federal Fiscal Year 2012 (FY 2012) budget. But, it was December 23, 2011, that President Obama signed into law the Consolidated Appropriations Act, 2012 (Public Law 112-74). That legislation had significant impact on the Title IV Federal Student Aid Programs. Most of the changes made by that law have become routine in our understanding and day-to-day operations. However, there was one provision in the law that had a specific limitation to it. That limited provision was regarding interest subsidy on Federal Direct Subsidized Loans during a borrower’s grace period.
Grace Period Interest Subsidy Resumes
In the Consolidated Appropriations Act, 2012, the law directed that interest subsidy on Subsidized Direct Loans during the borrower’s grace period would be temporarily eliminated. The effective dates of the cessation of interest subsidy applied only to loans first disbursed on or after July 1, 2012 and before July 1, 2014. Therefore, in the absence of any subsequent legislation that altered that date range limitation, effective July 1, 2014, all new Subsidized Direct Loans first disbursed on or after that date will again receive interest subsidy during the borrower’s 6-month grace period upon ceasing to be enrolled on at least a half-time basis in an eligible program. (The provision of interest subsidy is contingent upon the borrower otherwise qualifying for such subsidy, e.g., the student has not lost interest subsidy due to receiving Federal Direct Subsidized Loans in excess of 150% of the borrower’s academic program length, etc.) It is important to note that those loans first disbursed during the two-year period of the cessation of the grace period interest subsidy do not get the subsidy in the future. For example, a student who graduated in May 2014 will not receive interest subsidy during his or her grace period that began last month even though the time period of the law’s restriction has ended. Loans that students received that were first disbursed during that two-year period applicable under the law will not have interest subsidy during their grace period.
New Addendum to the Entrance Counseling Guide for Direct Loan Borrowers
ED recently updated the Addendum to the Entrance Counseling Guide for Direct Loan Borrowers. The release of this newly revised addendum was announced in the July 3, 2014 COD Processing Update. In this publication, ED updates the chart that appears on page 4 of the Entrance Counseling Guide that was published in December 2013. The information was revised to show the new interest rate for loans first disbursed on or after July 1, 2014, and before July 1, 2015. The chart now also contains an updated note about the payment of interest on Direct Subsidized Loans (i.e., there are some circumstances when a borrower may lose interest subsidy, e.g., if the borrower receives loans for a period of time that is in excess of 150% of the length of their academic program). Finally, it also lists the new contact telephone number of the Federal Student Aid Ombudsman.
Those schools that conduct individual entrance counseling sessions or other in-person entrance counseling formats will find this addendum helpful in ensuring that new borrowers are receiving the most current and accurate information. Schools that direct students to complete entrance counseling online may also find that this piece is useful to provide to borrowers as an attachment in e-mail communications or as a link on their Web site. Use in this way will provide students the most up-to-date information on this important topic in a concise format. The addendum is available in PDF format on the FSAPubs.gov Web site, or directly at https://www.fsapubs.gov/app/Search/ItemDetails.aspx?item=END0158X.
The information provided to you is FAME’s opinion based upon our interpretation of the issues and details provided, and our interpretation of the Title IV regulations, legislation, and U.S. Department of Education guidance, as applicable. FAME shall not be liable for any error contained herein or for any damages whatsoever arising out of or related to the use of this information.