Will the July 1st Student Loan Changes Affect You

President Obama asked Congress to extend low student loan interest rates for another year. If Congress cannot come to an agreement and pass the bill, student loan interest rates for subsidized government Stafford loans will double increasing from 3.4 to 6.8% on July 1, 2012. However, the increase will only affect undergraduate students who are issued government loans after July 1, 2012.  Interest rates for existing loans will not be affected.  

The interest rate for subsidized loans which are based on economic need is fixed for the life of the loan.  You are not charged interest while you’re in school at least half-time and during grace periods and deferment.  However, a six-month grace period on interest charged on federal subsidized student loans has been suspended which will cause interest to accrue the day after a student graduates from college from July 1, 2012 through June 30, 2014. The interest rate for subsidized loans is fixed at 6.8% for graduate and professional degree students and will not be affected.

The interest rate for unsubsidized student loans is 6.8% and will not be affected.  Interest accrues on unsubsidized loans from the time it is disbursed. You can pay the interest while you are in school and during grace periods, deferment or forbearance, or you can allow the interest to accrue.  

For military service employees, the interest rate on loans obtained before entering military service may be capped at 6% during your military service. However, you need to contact your loan servicer to request this benefit. Interest is not charged for loans disbursed after October 1, 2008 for up to 60 months, while serving on active duty, serving in a hostile area, performing qualifying National Guard duty during a war or an emergency. 

Private loans may initially offer a low interest rate similar to a balance transfer credit card, but the interest rate is variable and can increase at any time. The Georgetown University Center on Education predicts that by 2018, approximately 63% of all jobs will require some graduate school education. Here are 9 tips to protect yourself from the July 1^st student loan changes:

1.     Consider going to a cheaper college.

2.     Create a budget and stick to it while you are in college. 

3.     Determine if you will be able to afford to make the minimum loan payments before applying for the student loans. 

4.     Think hard about your major and map out how you can pay back student loans on your starting salary.

5.     Extend school for 5 to 6 years by working a co-op.

6.     Pay for tuition for participating in a work-study program.

7.     Work during the summer and save a large portion of the money to pay for school.

8.     Work full-time and go to school part-time.

9.     Consider staying at home for 1-2 years after graduation to save money and pay down student loans.

10.  If you are on active duty verify the terms and conditions of your student loan and the benefits for military personnel.

Unexpected events occur frequently and it is best to plan ahead instead of waiting until the last minute or being blindsided.