How the Debt Limit Affects Student Loans

Darren Gershby Darren Gersh, Washington Bureau Chief and
Janey Klebe, Intern

The debt limit agreement is generally short on specifics about budget cuts with a few exceptions. One program that will be eliminated are student loan repayment incentive payments. What are they? Our intern Janey Klebe took a look:

Two-thirds of students who graduate college have debt from student loans and for almost all of these students, a portion of their loans are direct loans. Direct loans are borrowed by both students and parents and are provided directly to them from the U.S. government. These loans have a low interest rate and do not require any credit checks. However, there is a limit to them and a student cannot receive more than $23,000 in direct loans throughout the entirety of his or her college period.

From 2000 to 2011, everyone who received a direct loan is eligible for loan repayment incentives. This is an interest rate reduction between 1.5% and 0.8% on the direct loans that borrowers may have. The percentage rate reduction depends on what kind of direct loan(s) a student or parent may have — is it subsidized or unsubsidized? Have you consolidated?

The loan repayment incentives are upfront rebates that are atomically deducted from the direct loan bill received by the borrower. There is nothing you have to do receive this deduction. However in the first 12 months, if you fail to make your payments on time, the rebate amount you were receiving will be added back to the principle balance on your loan.

Here’s more information about DirectLoan repayment incentives.

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