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Consumer Guide to Changes in Federal Pell Grants and Student Loans for 2012-13

On July 1 each year, planned changes to federal student aid, including Pell Grants and student loans, go into effect. Incoming freshmen and their families, students already in college or graduate school, and borrowers currently repaying their loans need to know what to expect as they figure out how to pay for school and manage their loans in the year ahead.

This consumer guide explains several important changes, both to Pell Grant eligibility and the terms of new federal student loans, starting July 1, 2012. A companion one-page chart summarizes the terms for federal student and parent loans issued in 2012-13.

To apply for Pell Grants, student loans, and other federal student aid, students can fill out the Free Application for Federal Student Aid (FAFSA).

Federal Student Aid Eligibility Change

  • Students who enroll in college for the first time on or after July 1, 2012 must have a high school diploma or GED, or have been home schooled, to be eligible for federal student aid (federal grants, loans, and work-study). Students who were enrolled before July 1, 2012 are not affected by this change.

Change to Pell Grant Eligibility

Pell Grants are need-based federal grants available to both full-time and part-time undergraduate students. They do not need to be repaid. For the 2012-13 award year, the maximum Pell Grant remains at $5,550.

  • The maximum number of equivalent full-time semesters a student is eligible to receive a Pell Grant will drop from 18 to 12 semesters for all students, including those close to completion.

Federal Student Loan Changes

Federal student loans are a form of federal aid that must be repaid. The main types of federal loans are Stafford, Grad PLUS, and Parent PLUS.

  • The fixed interest rate will remain at 3.4% for new subsidized Stafford loans issued on or after July 1, 2012. This rate was scheduled to rise to 6.8%, but Congress took last-minute action to retain the lower rate for one more year. Subsidized Stafford loans go to undergraduate students with financial need, and the government pays the interest while they're in school.

  • New subsidized Stafford loans issued in 2012-13 will accrue interest during the six-month "grace period" after students leave school. This will also be the case for loans issued in 2013-14. However, the federal government will continue to cover the grace-period interest for all subsidized Stafford loans issued before July 1, 2012, and the grace-period subsidy is scheduled to go back into effect for loans issued on or after July 1, 2014.  

  • As of July 1, 2012, graduate and professional students are eligible only for unsubsidized Stafford loans.

  • The only repayment incentive available is a 0.25% interest-rate reduction for borrowers who agree to make automatic electronic payments from their bank account.

  • The fixed interest rates for unsubsidized Stafford, Grad PLUS, and Parent PLUS loans remain the same as in 2011-2012. For more information, see 2012-13 loan terms.

Borrowers with Older Variable-Rate Loans: Rate Changes

All unconsolidated Stafford and Parent PLUS loans borrowed before July 1, 2006 have variable interest rates that reset each year. Borrowers with these older loans can consolidate them to lock in a low fixed rate in 2012-13. However, borrowers should be cautious about combining Stafford and Parent PLUS loans. Consolidation loans that include Parent PLUS loans (as well as individual Parent PLUS loans) are not eligible for Income-Based Repayment (IBR).

  • For 2012-13, the variable rate for Stafford loans issued between July 1, 1998 and June 30, 2006 is 2.39% during repayment and 1.79% during in-school, grace, or deferment periods. Any borrower with these loans can consolidate at a fixed rate of 2.50% during 2012-13. If 2012 graduates have these older loans, they can consolidate during their six-month grace period to lock in an even lower rate of 1.88%.

  • The variable rate for Parent PLUS loans issued between July 1, 1998 and June 30, 2006 is 3.19% in 2012-13. Borrowers with these types of loans can consolidate them at a rate of 3.25%.

  • When consolidating multiple loans, the new fixed rate will be a weighted average of the rates of the consolidated loans, rounded to the nearest eighth of a percentage point. New consolidation loans are made through the Direct Loan program, and only Direct loans qualify for Public Service Loan Forgiveness.

Links to More Information

  • Learn more about Income-Based Repayment, Public Service Loan Forgiveness, and whether your federal student loans qualify at

  • Not sure what kind of loan you have or whether you've already consolidated? Check the National Student Loan Data System to be sure. If you can't remember your PIN number, you can get a new one.

  • If you have questions about federal student loans, contact the Federal Student Aid Information Center toll free at 1-800-4-FED-AID.

  • To learn about terms and rates for new loans issued in 2012-13, see our easy-to-read summary.

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