With the passage of the Deficit Reduction Act of 2005:
• $12.7 billion was cut out of the federal student loan program.
• Student and parents will pay higher interest rates.
• Stafford loans first disbursed before July 1, 2006 will continue at variable rates, adjusted annually on July 1, capped at 8.25%.
• The current Stafford rate for pre-July 1st through June 30, 2007 is 7.14% during repayment and 6.54% during in-school, grace, and deferment.
• The Stafford rate on new loans issued beginning July 1, 2006 switched from a variable rate set annually to a 6.8% fixed rate.
• The change represents a 44.6% for current borrowers.
• Variable rate loans taken out by parents, known as PLUS (Parent Loan for Undergraduate Students) loans, are now fixed at 8.5% but in an apparent legislative oversight the fixed interest rate for PLUS loans from the Direct Loan Program is 7.9%.
• Students and parents will be able to borrow slightly more money but the aggregate maximum will remain unchanged.
• First-year loan limit increase from $2,625 to $3,500 and from $3,500 to $4,500 in the second-year.
• Aggregate loan limits are not increased.
• Unsubsidized loan limits for graduate and professional students are raised from $10,000 to $12,000.
• The law makes parent PLUS loans an option for grad students
• Loans made to Grad PLUS borrowers are the same as those that apply to PLUS Loans made to parents of dependent undergraduates.
• The main difference between the Grad PLUS Loan and the Parent PLUS Loan is that graduate and professional students who are denied a PLUS loan because of an adverse credit history will not be eligible for increased Stafford Loan limits.
• All Grad PLUS applicants must complete and submit the Free Application for Federal Student Aid (FAFSA) before applying for a PLUS Loan.
• In-school and re-consolidation options eliminated.
• A borrower with a defaulted loan can receive a Direct Loan consolidation loan to resolve the default.
• Spousal consolidation eliminated.
• The anticompetitive “single holder” rule which limits a student's choice of lenders for consolidation was repealed effective June 15, 2006 by the Emergency Appropriations Act of 2006.
• Although the anticompetitive “single holder” rule has been repealed, it is recommended that if you are still in school and have remaining Stafford Loan