Although the absurdity of the debt ceiling debate may have made you think that politics are completely out of touch with reality, the Budget Control Act has some very real and important implications for Columbia students receiving financial aid.
First the good news: Pell Grants will continue to be funded through 2013, without a reduction in the maximum allowance of $5,550. As we explained when the bill was passed last year, healthcare reform actually included some very important changes to federal student loans. Columbia prides itself on educating the most Pell recipients of any Ivy League or private research university.
And the bad: the money to keep the Pell Grants alive comes from the elimination of federal subsidies for grad students. Furthermore, for all students with federal loans, benefits for timely payments will most likely be cut, and interest rates see increases, starting July 1, 2012.
The Office of Financial Aid’s e-mail explains the changes in detail after the jump.
On Tuesday, August 2, President Obama signed into law the Budget Control Act of 2011, which will have a direct impact on financial aid at Columbia and higher education institutions nationwide. While undergraduate Pell Grants are continued through 2013, the new law includes the elimination of subsidized federal loans for graduate students, as well as the elimination of incentives for repaying loans on time for all students. We are writing to explain how these changes will affect your future loan awards and repayment arrangements.
Please know these changes will not affect earlier Direct Loans, or those taken out for Fall 2011 or Spring 2012, but are effective for loans disbursed on or after July 1, 2012.
For all Students with Loans: The new law eliminates some discounts given to Direct Loan borrowers who make their payments on time. These changes will be effective for loans disbursed beginning July 1, 2012, and will not affect previous Direct Loans. The current repayment incentives that will be changed or eliminated next July are:
- The up-front interest rebate at Direct Loan disbursement, equal to 0.5% of the loan amount and applied toward the 1% loan origination fee charged by the Department of Education. Borrowers who make 12 on-time payments keep the up-front rebate.
- For PLUS loans, the up-front interest rebate is currently 1.5% applied toward the 4% origination fee.
- The current incentive for using automatic debit repayment plans for Direct Loans is a 0.25% interest rate reduction. Note that under the provisions of the new law, there may be some continuation of an interest rate reduction for automatic debit payment arrangements for loans originating July 1, 2012 or later, but this change has not been finalized.
As a reminder, Columbia’s summer terms span multiple sessions, some of which begin before July 1. Students who expect to take out loans for a Summer 2012 session that begins prior to July 1 should be sure to have all application materials handed in on time to receive the pre-July 1 benefits.
For Undergraduate Students: The maximum amount for Pell Grants will remain $5,550. The new law provides funding for Pell Grants through 2013.
For Graduate Students: Beginning in July 2012, the U.S. government will no longer subsidize federal loans to graduate students. The new federal law eliminates the subsidy and uses the savings to fund Pell grants for low-income undergraduate students. We encourage borrowers who will be taking out additional unsubsidized loans after July 1, 2012 to consider making optional interest payments while in school to reduce overall debt before graduation.
If you have any questions about changes to your financial aid, please reach out to your school’s financial aid office. As a reminder, contact information for school offices is online:
University Financial Aid