My boyfriend and I have been shopping for college loans, and we've been hearing about changes in the rules. Can you give us some guidelines on what to look for?
From: Sonya C.
When it comes to paying for college, students and their parents can count on ponying up more money starting on July 1, when a sweeping new law brings in several changes in student loan regulations. What’s the reason? Well, what with tax cuts plus expenses like Hurricane Katrina, the federal deficit has been going crazy. So Congress went looking to save like $40 billion. Their ideas on how to save the money included taking back almost $13 billion in subsidies from lenders who deal in student loans. (Did you know that lenders get paid twice, once by the student borrower and again by the feds? Well, they have and they do and they will, at least for a while.)
Naturally, the expense is getting passed on to students in the form of higher interest rates and so on. There are a couple good breaks coming too, but first the bad news, starting with STAFFORD LOANS, the government-issued basic currency of financial aid. Stafford interest rates are now recalculated every July: If you’re in school, you’re paying 4.7%; out of school, you’re at 5.3%.
This July, Stafford Loans go up to 6.8% fixed interest. It’s not the end of the world, of course. But if you’re still in school and you love a good deal, you might want to lump your current loans in together and CONSOLIDATE before the new rules hit. That might get you a fixed interest rate under 5%—a real advantage in the long run. Get a move on, though. After July 1, you won’t be allowed to consolidate until after graduation.
PLUS LOANS, the equivalent of Stafford Loans, except that they cost more and they’re borrowed directly by parents, are also getting more expensive. Where they had carried a variable rate of 6.1%, now they’ll be fixed at 8.5%.
So that’s the bad news. What’s the good news?
There’s a bit more action in the area of GRANTS. In addition to Pell Grants, the old standby for students who have greater financial need, the new law creates merit-based grants for students who major in engineering and math and science and some other pursuits deemed to useful in the war on terror. Price of admission: Study the stuff and keep up a 3.0 grade average. How much money are we talking about? Freshmen: $750; sophomores, $1300; seniors and juniors, $4,000.
Also, come July, you’ll be able to BORROW MORE. Kind of a mixed blessing, but what can you do? Freshmen will have access to $3,500 (up from $2,625). The sophomore limit goes up to $4,500 (from $3,500). Juniors and seniors keep the old limit of $5,500, but for graduate students the amount goes up to $12,000 (from $10,000). And starting in July, graduate students can also borrow PLUS Loans—a recipe for big debt, to be sure, since these higher-interest loans come due the same time as the Staffords.
Word to the wise: If your education is costing enough to get you into more than one kind of debt all at the same time, do try to make sure you’re studying something that offers you a way to pay back the money. We’re just saying.
One favorable thing: Origination fees, which you now pay on your Stafford Loans—another way to sweeten the loan for the lender—will start to drop in July. By 2010, they’ll be history.