The End of Subsidized Grad School Loans

Financial Goals, Financial Planning

Graduate students (or prospectives) beware: Beginning July 1, 2012, new federal graduate school loans will no longer be subsidized. But what does this mean for the price of your education — and how does the new regulation impact your wallet? It depends on whether you’ve graduated, are currently in graduate school, or plan on going to graduate school after 2012.

Subsidized Versus Unsubsidized Loans

Subsidized loans are interest-free while you are an in-school or otherwise have a deferment (authorized break from payments). As an example, let’s say you spent four continuous years in college, plus two years in graduate school. You have a subsidized loan from your first semester for $1,000 with a 5.3% interest rate. After completing your schooling, you would only owe the original $1,000, thanks to the subsidized nature of the loan. If your loan was unsubsidized, you’d owe your loan balance plus any interest occurred totaling $1,318.

Past Loans

Rules aren’t changing for subsidized loans you’ve borrowed in the past. If you qualify for a deferment for reasons such as going back to school to get your PhD, you will still not get charged interest for the specified time period. If you borrow federal student loan money after July 1, 2012, new loans won’t be subsidized for graduate school and beyond.

Borrowing Limits

If you’re starting or continuing a graduate degree program effective July 1, 2012 or later, borrowing limits won’t change. The total you’re allowed to borrow in the 2012-2013 school year from Federal Stafford Loans is still a maximum of $20,500 per year. The difference is all of your new loans will be unsubsidized. If you qualify for Federal PLUS Loans, you can borrow additional funds. However, these loans are unsubsidized, too.

While limits aren’t changing, always estimate your future payments by utilizing calculator links on the resources page of before you decide how much of your student loan award you need. $23,000 per year for 6 years totals $138,000 (and over a $1,000 per month on a 10-year repayment plan, regardless of your interest rate).


If you have consolidated your federal student loans or intend to consolidate after graduation, your subsidized loans will not be affected. Even though you pay via a single check or electronic payment, your unsubsidized and subsidized loans are separated in consolidation in case of future deferments.

Income-Based Payments

If your income qualifies and you choose to utilize an income-based repayment plan, your total federal student loan debt will still be considered for calculating your payment. While both unsubsidized and subsidized loans are part of your payment, your loans are separated when if you request and receive a deferment. For instance, let’s asssume you decide to return to school after five years to complete another graduate degree or get your Phd. You’re currently on an income-based repayment plan. You have $20,000 worth of subsidized loans and $40,000 of unsubsidized loans at 6.8%. Your subsidized loans won’t acquire a dime of interest, while yoru unsubsidized loans ccumulate $2,720 each year you’re in deferment.

In conclusion, eliminating future subsidized federal graduate school lending increases the cost of your future education, but it won’t impact past loans in any way.

Reyna Gobel is a freelance journalist who specializes in financial fitness. She is also the author of Graduation Debt: How To Manage Student Loans and Live Your Life.

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