<p>I am cutting and pasting this directly from an email bulletin I receive - it summarizes recent changes in the law very well. You can blame Dick Cheney for this one - he cast the tie breaking broke to impose these changes:</p>
<p>*Featured Article: Washington Update</p>
<p>Yes, two featured articles in one issue - we couldn’t resist, given what’s been going in on Washington. If you don’t follow politics in Washington, DC, higher education financial aid took a major hit in Congress this past month with the passage of the Budget Reconciliation Act of 2005. Senate Bill 1932 has passed the Senate by a 51-50 vote, with Vice President Dick Cheney casting the deciding vote. This act brought a gargantuan number of changes to student loan programs and involves some hefty interest rate hikes to your loans as of July 1, 2006. Here’s a rundown of what’s new:</p>
<li><p>Stafford Loans will have fixed rates of 6.8%, a major increase from today’s 4.7% for students in school and 5.3% for graduates in repayment. Bad for students.</p></li>
<li><p>PLUS Loans will have fixed rates of 8.5%, a huge increase from today’s 6.1% parents are paying. Bad for students - and parents.</p></li>
<li><p>Elimination of Stafford loan in school interest rates, which currently give a 0.6% discount to students in school or in their grace periods. Bad for students.</p></li>
<li><p>Increases student loan limits for selected student loans. Good for students. However, does not change aggregate maximums, meaning students will hit maximums sooner, potentially causing them to be ineligible for federal aid for an entire academic year. Bad for students.</p></li>
<li><p>Allows graduate and professional students to borrow PLUS loans. Good for students. However, those loans will not have any kind of deferment available while students are in school, making them unappealing for students.</p></li>
<li><p>Establishes a supplement to the Pell Grant for students in high-need areas of mathematics and science, up to $4,000 per year. Good for students.</p></li>
<li><p>Makes administration of student loan programs discretionary funding instead of mandatory funding. Thus, Congress can zero out the administrative budget of any student loan program, effectively killing it without having to pass politically unpopular votes. Bad for students.</p></li>
<li><p>Adds a provision for deferral of student loans for active duty military personnel. Good for students.</p></li>
<li><p>Doubles student loan origination fees. If you take out a federal loan after July 1, 2006, your fees will double. Bad for students.</p></li>
<li><p>Prohibits students who consolidate their loans with a FFELP lender from reconsolidating with the Direct Loan program. Currently this is allowed and is part of a consolidation program called a “Super 2 Step”, giving students more lender choice. The change in law makes it nearly impossible for students to switch lenders. Combined with the existing single lender rule, students will be locked into loan programs with no hope of changing lenders. Bad for students.</p></li>
<li><p>Consolidation of student loans for students in school is prohibited. Bad for students.</p></li>
<li><p>Student loan lenders are not obligated to report student loans to credit bureaus. Thus, if you have a good payment history, it doesn’t help your credit rating. Bad for students.</p></li>
<li><p>Allows teachers at private schools to qualify for loan forgiveness. Good for students.</p></li>
<li><p>Student loan rehabilitation made easier with 9 consecutive payments to pull a loan out of default instead of 12. Good for students.</p></li>
<li><p>Allows the Department of Education to retrieve IRS tax data on borrowers. Bad for students, especially if you have privacy concerns!</p></li>
<li><p>Drug related offense ineligibility changed so that you are ineligible for federal aid if your drug offense occured while you were receiving federal financial aid. Good for students.</p></li>
</ol>
<p>The net of these changes is that students will be paying more, paying higher rates, and will have far fewer choices when it comes to student loan lenders than ever before. This is bad overall and bad for students, especially those who rely on federal loans for the bulk of their financial aid.*</p>
<p>The BOOMER's didn't speak out loud enough and the 18-22 year olds don't know better. </p>
<p>Money matters have little bearing until it affects you (consumer) directly. I'd be prepared to lose the interest deduction on SL and future deductions on mortgages. </p>
<p>Deficit situation could be very critical when BOOMER's retire.
GL</p>
<p>
[quote]
12. Student loan lenders are not obligated to report student loans to credit bureaus. Thus, if you have a good payment history, it doesn't help your credit rating. Bad for students.
[/quote]
</p>
<p>This one in particular makes no sense at all to me...Is this also saying if you default on a student loan it won't affect your credit? That sounds silly...</p>
<p>Another beef I have with student loans is that I was ineligible to consolidate my loans before all of this went into affect because I didn't have enough in loans to allow them to do so...grrr....</p>
<p>Also, I'm kind of uneducated when it comes to my student loans...I'm in deferral due to graduate education, will my rates increase? Also, what happens with private education loans taken out if anything?</p>
<p>Geez...I should really keep up with this issue (<em>kicks herself in the butt to get herself in gear</em>)</p>
<p>I do understand that these new rules don't go into effect until July 1, I was referring to a rate increase last year (just didn't express that properly). I had called them before the increase last year to consolidate, but the representative had told me I didn't have enough loans to qualify for reconsolidation at a lower rate.</p>
<p>I only took out federal loans my senior year of undergraduate, I received a Stafford loan (partially subsidized, partially unsub. through PHEAA) for each semester in addition to taking out a small educational loan through a local bank (this was for the 2003-2004 academic year). In graduate education I took out another small educationl loan through a different bank (this was last December).</p>
<p>Unfortunately the promissory notes are in my parents possession, as they co-signed for my loans (though I am responsible for paying them back). I'll try to get them to send them to me in the near future.</p>
<p>as much time as you give to a single problem set, or one party, or a date, or to get home for the holidays, will save you (student & parents) YEARS of labor, anguish, and opportunity. </p>
<p>FYI: The legislation described in Carolyn's post HAS NOT (yet) PASSED Congress!</p>
<p>It likely will pass...altho who can tell w/this Congress? It's highly controversial. If you care, contact your Congressman/woman ASAP...</p>
<p>THe legislation's spot in the process is convoluted...generally, the final version of the bill was in fact approved, first by the House by a relatively close vote (I think it was 212 to 206, or something like that), and then by the Senate, 50-50, w/VP Cheney providing the tie-breaking "aye" vote...but not til after the Senate had amended the version that the House had approved...hence, the House has to vote on it again. The amendment is highly technical and "small"--unlikely it alone could stymie enactment of the bill, unless enough "other" controversy over the bill's various provisions cause the House to vote against the bill when it comes up for a revote...</p>
<p>The House will not be back in Washington til 1/31/06...the vote is unlikely til 2/1 at the soonest...</p>
<p>I took out bank loans because my parents were not going to take out loans for me, they had already saved up enough money for my education (darn 9/11 pretty much killed my accounts). The reason my parents have the notes is because they are safer in their home than in my apartment. On my bank loans I am the primary applicant for the loan and I had my mom cosign on them to get a lower interest rate (I was eligible to get them on my own with my good credit). Thanks for the advice :D</p>
<p>I do think that with the changes going in to effect it will be well worth it for parents and students to look into alternative financing sources. Parents with good credit may be able to get loans at more favorable rates from different lenders -- the fixed 8.5% interest rate sets a fairly high bar. When you add in the cost of loan origination fees, you may find that the real rate of interest is even higher. So advice that has been given in the past over whether it is better to take out a home equity loan vs. a PLUS loan may change.</p>
<p>Sorry if my original post was misleading in suggesting that the law had already passed -- but I do think that it probably WILL pass, and it is important to know about for planning purposes. I emailed the same information to both of my kids, because I think that there is a tendency for kids to give very little thought to the long term impact of loans and what they will mean.</p>
<p>I know that some students have no choice but to take out student loans, but I have recently concluded that student loans are an evil to be avoided at all costs, and taken as a last resort only. Why? Mainly because student loans remain collectible above almost any other debt and cannot be discharged through bankruptcy. If the former student can't find a job, becomes ill, disabled, doesn't matter, they will still come after you for these student loans. As we have recently seen they will even garnish your social security check (assuming there is a social security check going forward). I have read too many stories about sick, unemployed, disabled former students being hounded by collection agencies, and student loan debt compounding with higher than expected interest rates and penalty fees. </p>
<p>When I attended grad school the economic decision was to take loans because I could borrow at 2 or 3% (market rates were 20%). I graduated with a small amount of loans and paid them off over 10 years. Now I advise borrowing as a last resort.</p>
<p>Do you even know the type of loan that you have and the interest rates? I am not aware of a minimum amount to consolidate. The process of consolidation will take months and you can eventually decline the consolidation when offered. </p>
<p>Your parents are great to have saved and invested the required $ that you needed for college. 9/11 affect our kid's college funds also, but the resulting loan interest rates in student loans was even less than CD saving accounts.
All came out well and we are now far ahead of the situation. </p>
<p>Again try AES-Pheaa. They are open far into the night. Do NOT delay.</p>
<p>If you don't think this was a good idea, you can indicate by voting out your friendly neighborhood congressman, if he or she supported it. Congress needs to know if there is political support out there for college students.</p>
<p>Year Rate Formula
2005-06 5.30% (2.998 + 2.3%, cap 8.25%)
2004-05 3.37% (1.066 + 2.3%, cap 8.25%)
2003-04 3.42% (1.121 + 2.3%, cap 8.25%)
2002-03 4.06% (1.760 + 2.3%, cap 8.25%)
2001-02 5.99% (3.688 + 2.3%, cap 8.25%) </p>
<p>Arrival of Darth Vader II aka Dick Cheney </p>
<p>2000-01 8.19% (5.893 + 2.3%, cap 8.25%)<br>
1999-00 6.92% (4.621 + 2.3%, cap 8.25%)
1998-99 7.46% (5.155 + 2.3%, cap 8.25%)
1997-98 8.25% (5.16 + 3.1%, cap 8.25%)
1996-97 8.25% (5.16 + 3.1%, cap 8.25%)
1995-96 8.25% (5.82 + 3.1%, cap 8.25%)
1994-95 7.43% (4.33 + 3.1%, cap 8.25%)
1993-94 6.22% (3.12 + 3.1%, cap 8.25%)
1992-93 6.94% (3.84 + 3.1%, cap 8.25%) </p>
<p>PS The variable interest rate on most federally-guaranteed student loans is readjusted annually based on the final 91-day T-bill auction prior to June 1 and is effective July 1. The formula is equal to the bond-equivalent rate for the T-bill plus an interest rate margin set by the Department of Education.</p>
<p>i'm glad i consolidated mine to a fixed interest rate as well. i don't remember exactly what the rate is, but it's a lot less than whatever was mentioned above. haha.</p>
<p>I have Stafford unsub (very small unsub one I should probably just pay off?) and sub loans at rate of 4.7% and an ALPLN loan at 8.030%. I'm not sure where my graduate loan is right now, but since I got that one here in NC rather than in PA, it's not listed in PHEAA (need to call my mom on that one...). I guess I can pay off the small unsub one and then I won't have to reconsolidate?</p>