New limits on subsidized Stafford loans went into effect on July 1, 2013, to reduce the cost of the loan program and encourage students to finish their programs of study on time. These changes can get pretty complicated (even by student loan rule standards), so we've covered their ins and outs in the Q&A below.
Details About The New Rules
Q: Whom do the new rules apply to?
A: The new interest subsidy rules only apply to undergraduate subsidized Stafford loan borrowers who begin borrowing on or after July 1, 2013.
Q. What are the new rules?
A: Borrowers may receive subsidized Stafford loans for up to 150% of the published length of their degree or certificate program. For example, if you are in a 2-year degree program, you may receive subsidized loans for up to 3 years. After that, you're limited to unsubsidized loans.
The new rules also limit the amount of time you receive the subsidy itself. That means if you stay enrolled after the 150% mark, regardless of whether you receive more loans, you become responsible for the interest that accrues on your existing subsidized Stafford loans.
For example, if you enroll in a 2-year program but it ends up taking you 4 years to finish, you won't be able to get subsidized Stafford loans for year 4 and the loans from the first 3 years will start accruing interest.
Q. What if I switch programs?
A: If you switch programs, the time you received a subsidy in the old program counts against the total time you get in the new program.
For example: You finish 1 year of a 2-year program and switch to a 4-year program. The 2-year program allowed a total of 3 years of subsidy and you used 1. The 4-year program allows a total of 6 years subsidy. Since you used a year under the 2-year program already, you have 5 left.
Switching to a shorter program gets more difficult. Say you attend a 4-year program for 3 years then transfer to a 2-year program. In that 2-year program, you're only eligible for 3 years of subsidy—but you used 3 years already. So, when you enroll for that 4th year, you will not be able to receive new subsidized Stafford loans and will begin accruing interest on the ones you have. If you stayed in the 4-year program, or graduated from it before switching to a shorter one, you won't have that problem.
Exceptions And Unusual Cases
Q: What if I don't receive subsidized Stafford loans every year?
A: Years you don't receive subsidized Stafford loans do not count against your maximum allowed subsidy time.
Q: What if I am not attending school full time or attend less than a full year?
A: In most cases, the time is prorated: half-time enrollment counts for half usage. However, if you borrow the maximum full-year loan amount, it counts as a full year—even if you attend part time or for less than a full year.
Q: What if I borrow less than the maximum?
A: In most cases, you will still be considered to have used the full subsidy time.
Q: How do I know if these rules apply to me? What's the definition of ";new borrower as of July 1, 2013?"
A: Only borrowers with no outstanding Stafford or PLUS loans on July 1, 2013, are considered new July 1, 2013, borrowers.
Consolidating old loans after July 1, 2013, does not make you a new borrower.
If you had pre-July 1, 2013 loans, took out a new Stafford or PLUS loan on or after July 1, 2013, and then paid off your pre-July 1, 2013 loans, you are not a new borrower.
Perkins loans are not considered in this eligibility definition. Whether or not you have Perkins loans from before July 1, 2013, you are a new borrower if and only if you have no Stafford or PLUS loans when you begin borrowing on a date after July 1, 2013.
Q: If I exceed my subsidized usage period, continue enrollment in school, but do not obtain any further Stafford loans, do I still lose the subsidy?
Q: If I complete an undergraduate program without triggering accrued interest, then enroll in a new undergraduate program, does the subsidy usage from the prior program apply to the new program?
A: Yes, but exceeding the remaining subsidy usage period during this second degree will not trigger accrued interest.
Also, if you exceed the usage allowance under the new program, interest will only accrue on the loans taken for this new program.
Q: If I reach my subsidy usage limit but do not exceed it, then attend a graduate program or enroll in a program not eligible for Title IV funds, will interest accrual be triggered?
A: No. Graduate programs and non-Title IV programs are not eligible for subsidized Stafford loans, so they do not affect your subsidy usage limit or subsequent interest accrual responsibility.
Q: How is preparatory coursework calculated in this subsidy usage rule?
A: The undergraduate preparatory coursework subsidy usage period applies to the maximum eligibility for the undergraduate program for which the coursework is required. If the preparatory coursework is required for a 4-year undergraduate degree, then the total subsidy usage for both the preparatory coursework and the subsequent 4-year degree is 6 years.
Preparatory coursework required for entry into a graduate program is the maximum eligibility period for the undergraduate program for which the borrower most recently received subsidized Stafford loans. Borrowers with no remaining eligibility may not receive subsidized Stafford loans but will not trigger interest accrual on existing loans.
Q: How are Teacher Certification programs treated under the subsidy usage rules?
A: Teacher Certification programs where the institution does NOT award an academic credential are treated the same as other undergraduate programs, except that prior undergraduate subsidy usage is not calculated as part of the TCP subsidy usage. TCPs where the school does award an academic credential are treated the same as other undergraduate programs.
Q: Can I ever regain subsidy eligibility once I have reached and exceed the subsidy usage allowance?
A: Loans cannot regain their subsidy eligibility once it is lost. You may enroll in a longer program to regain new subsidy eligibility for new loans, but the older loans will not regain their interest subsidy.
Q: I received a letter saying that my subsidized Stafford loan is being turned into an unsubsidized loan. The date is from a few months ago. What's going on?
A: Though the 150% Rule went into effect on July 1, 2013, it took loan servicers and the U.S. Department of Education a while to update all of their systems to comply with the rule. Because of this, borrowers weren't notified that they were losing their interest subsidy benefits until July 2015—even though they could have actually lost these as far back as July 1, 2014.
You lost the interest subsidy benefit when you exceeded the 150% time limit. If your loan holder backdated this change, then the interest that you should have accrued would have been added to your balance. If you're in repayment, this would likely increase your student loan payment, unless you're on an income-driven repayment plan.
Q: When will my subsidized Stafford loan be subsidized?
A: Locate your loans in the left-most column to find out when.
|The entire time that you are enrolled in school at least half time||Limit of while you are enrolled in school at least half time for up to 150% of your program length||Grace period||Deferments and the first 3 years of IBR and PAYE if payments aren't covering accrued interest||During forbearance, almost all times of repayment, and all times of default|
|All undergraduate subsidized Stafford loans made prior to July 1, 2012||Yes||n/a||Yes||Yes||Never|
|All undergraduate subsidized Stafford loans made from July 1, 2012, to June 30, 2014, regardless of borrowing history||Yes||n/a||No||Yes||Never|
|Undergraduate subsidized Stafford loans made on or after July 1, 2013, to students with no outstanding loans made before July 1, 2013||n/a||Yes||Yes—unless you are enrolled longer than 150% of your program length||Yes—unless you are enrolled longer than 150% of your program length||Never|
|Graduate subsidized Stafford loans made prior to July 1, 2012||Yes||n/a||Yes||Yes||Never|