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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jul 17, 2012

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New graduate students are in for a shock now that widespread changes have been implemented for federal college loans.

As of July 1, 2012, all graduate students are no longer able to borrow subsidized Stafford loans. Before July, master’s students were allowed to borrow a maximum of $8,500 in subsidized loans. These college loans did not accrue interest while a borrower was a student, and it gave students a six-month grace period after they completed their studies.

According to the National Association of Graduate-Professional Students, a student in a two-year Master’s degree program that borrows $8,500 a year will pay $1,773 in interest.

Christopher Chapman, the president and chief executive of Access Group, a nonprofit lender for graduates, is concerned over the federal changes on college loans, particularly for those pursing a Master’s of Business Administration (MBA).

“I don’t know whether that will affect a person’s decision to go and get an MBA, but it certainly adds to their debt burden,” he said, according to Business Week. “It is a meaningful increase in debt to what is already a fairly highly debt load coming out of an MBA program for most people.”

Graduate students will also be impacted by loan origination fees.

Before the July 1st changes, students were charged 0.5 percent loan origination fees if they made their first 12 monthly payments on time. If they missed any of those payments an additional 0.5 percent would be tacked on. The new changes, however, require that all students be charged a 1.0 percent origination fee, regardless of the monthly payments made in that first year.

Graduate students also rely on Graduate Plus loans to pay for college. These carry a 7.9 percent interest rate. The origination fee for these types of college loans jumped from 2.5 percent to 4.0 percent thanks to the July 1st changes.

These changes to college loans are far from meaningless according to Dan Thibeault of Graduate Leverage.

“That money could be dollars you’d put towards buying a PC while you’re at school,” said Thibeault, according to Business Week. “So it is not immaterial when you look at the costs of school increasing and people having to tighten their belts.”

David Moss, of the University of Virginia’s Darden School of Business, is concerned that MBA students will turn to private college loans, which are known to usually carry higher interest rates.

“They’re going to weigh their options about whether to go federal or private,” he said to Business Week. “They’ll see the higher cost of those federal loans and higher upfront origination fees, so we’re expecting they will probably gravitate towards more private loans, at least for the first year.”

The changes in graduate college loans may not be fully seen until the fall of 2013 according to Matt Cooper, CEO of the National Association of Graduate-Professional Students.

“That’s when we’re really going to start seeing people questioning whether they should get an MBA or no degree at all,” he said in a Business Week interview. “This may tip the scale for them.”