Deficit Reduction Act (DRA) of 2005

On February 8, 2006, President Bush signed into laaw the Deficit Reduction Act (DRA) of 2005, which decreases federal spending on student loan programs by $11.9 billion over five years and includes a number of changesto the Federal Family Education Loan Program (FFELP). Key points are summarized below.

Interest Rates

Changing from Variable rates to fixed rate effective 7/01/2006.

Stafford -6.8%
PLUS -8.5%

Consolidation rates remain fixed at the weighted average of all loans rounded up to the next 1/8 of 1%

Loan Limits

1st year Stafford loan limit increased from $2, 625 to $3,500
2nd year Stafford loan limit increased from $3,500 to $4,500
Unsubsidized loan limit for Graduate/Professional Students increased from $10,000 to $12,000
Raises loan limits for teacher certification/coursework necessary to enroll in grad school or obtain credtional from $5,000 to $7,000
effective fro loans first disbursed on or after 7/01/2007
Allows graduate/professional studnets eligibility for PLUS loans effective on 7/01/2006

Consolidation Loans

Eliminates:

Spousal Consolidation
In-school Consolidation

Loan Origination Fees

Phase down the Federal Stafford loan 3% Brorrower Origination Fee to 0% by 7/01/2010

2% loans with first disbursement on/after 7/01/2006
1.5% first disbursement on/after 7/01/2007
1% first disbursement on/after 7/01/2008
0.5% first disbursement on/after 7/01/2009
0% first disbursement on/after 7/01/2010

PLUS loan origiantion fees remain at 3%

Guaranty Fee

One percent guaranty fee and the authority for guarantors to waive it, is being discontinued.
Guaranty Fee is now known as the "Default Fee"
Fee is replaced by a mandatory one percent federaldefault fee which must be paid by

borrowers, or
paid on their behalf from on-federal sources

Great lakes indicted that they will pay the new default fee on the majority of loans it guarantees through the 2006-2007 award year.

Deferment

Military deferment for loans with a first disbursement on or after 7/01/2001
Deferrable up to 3 years

New Grants

Academic Competitive Grant

$750 to 1st year students
$1,300 to 2nd year studnets
Must have completed "rigorous" approved secondary school program
3.0 GPA required in first year
Must be eligible for Pell Grant in order to qualify

National Science and Mathematics Access to Retain Talen (SMART)Grant

$4,000 for 3rd and 4th yer students
Pursuing science, math or foreign language
3.0 minimum GPA in coursework for major
Must be eligible for Pell Grant in order to qualify

Effective date 07/01/2006

Eligibility

Ineligibility applies for drug convictions taking place while a student is enrolled in school and was receiving Title IV assistance effective 7/01/2006

Verification

Authorized to verify financial information as reported on the FAFSA with IRS data

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Fax: (402) 399-0129
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