<p>My third of three is entering college and will be the first to take out Stafford loans. That has me following the legislation regarding the future structure of Stafford loans. It looks like the new legislation will be finalized this week. I'll confine myself to undergrad loans. Here's where we stand, according to this Washington Post [url=<a href="http://www.washingtonpost.com/politics/congress/differences-in-house-senate-versions-of-student-loan-bills-small-set-to-be-easily-resolved/2013/07/29/05614ea8-f825-11e2-a954-358d90d5d72d_print.html%5Darticle%5B/url">http://www.washingtonpost.com/politics/congress/differences-in-house-senate-versions-of-student-loan-bills-small-set-to-be-easily-resolved/2013/07/29/05614ea8-f825-11e2-a954-358d90d5d72d_print.html]article[/url</a>] .
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Senate: Undergraduates who take subsidized and unsubsidized Stafford loans would pay the 10-year Treasury note, plus an additional 2.05 percent. That would put the interest rate at about 3.9 percent this fall. Rates would be capped at 8.25 percent.</p>
<p>House: Under the House bill, undergraduates who take subsidized and unsubsidized Stafford loans would pay the 10-year Treasury note, plus an additional 2.5 percent. That would translate to an interest rate of about 4.3 percent interest rates for loans taken this fall. Rates would be capped at 8.5 percent.
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<p>There is little difference between the two versions of the bill. I'll use the Senate numbers for a best-case scenario. For unsubsidized loans students would benefit from lower interest rates, at least in the short run. 3.9% is lower than 6.8%. Interest rates could rise almost 3% before the borrower is worse off. For subsidized loans a first-year student has no idea what interest rates will be when interest begins to accrue in 4 or 5 years. It could be 3.5% or it could max out at 8.25%.</p>
<p>My guess is that the only way interest rates stay this low is if the anemic economy continues. That's great for interest rates but not so great for college grads entering the job market. If the economy is robust an produces jobs for the borrowers then loan rates adjust upward and repayment is more difficult. There's good news and bad news in either scenario and just about every scenario in between.</p>
<p>I suppose the biggest issue now, as it has been, is to educate those in high school with college plans, and their parents, about the new realities of borrowing for college. There has always been risk in student loans, but now the risk is greater. At best less favorable terms to borrowers will bring with it greater sobriety in considering whether and where to attend college, and greater seriousness about completing a degree on time. Hoping for interest rates to remain low is not a plan to finance a college education.</p>
<p>At the risk of receiving oft-cited responses I would appreciate any thoughts and/or strategies for coping with the new student loan landscape.</p>
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I think the Senate version would have interest rate set when the loan is distributed, not when you start to repay the loan. So I think the rate will likely below 6.8% in next few years.</p>
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<p>Exactly. (So any comment is just idle speculation.)</p>
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<p>Rates have only been low in the past few years. The unsub was 6.8% not too long ago.</p>
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<p>If you need 'em, take the subsidized for sure. They can always be repaid early.</p>
<p>The proposal is that the rate is set for the life of the loan, but each year can (will?) have a different rate. When repayment rolls around, it will be based on a weighted average of all the loans. As I indicated on another thread, this does not look like a good deal to me. It is only “good” so long as the economy is weak. Being tied to 10-year T-bills plus a few extra % (depending on the type of loan) is not such a great deal when the fed stops holding down interest rates.</p>
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<p>Perhaps true for the borrower, kelsmom, but it appears to be somewhat revenue neutral for tax payers. The few extra % covers admin and bad debt over the then government’s borrowing costs, for example. Thus, from a public policy perspective, maybe its ok.</p>
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So I have to pay extra % in order to cover those won’t? It’s not fair!</p>
<p>Here is the latest update regarding the pending legislation:
“But under the Senate bill, once a student or parent takes a loan for the school year the rate would not change. The House bill would make the interest rate variable, meaning it could change every year until the loan is repaid.” The House bill would make it an even bigger gamble, IMO. 4kidsdad, I agree with you … and any politician who says this legislation helps families afford college is misguided, to say the least.</p>
<p>Ah, the political rhetoric is here already: [When</a> We Put Our Country First, We Can Do the Right Thing | Sen. Joe Manchin](<a href=“When We Put Our Country First, We Can Do the Right Thing | HuffPost Latest News”>When We Put Our Country First, We Can Do the Right Thing | HuffPost Latest News).</p>
<p>Seriously, how on earth does temporarily lowering interest rates with a plan that surely will result in rises over the longer term solve anything???</p>
<p>^^agreed. Politics as usual. Do something cheap today, and kick the can down the road.</p>
<p>While the new undergrad loans will start at 3.96%, they can float upwards to to a max of 8.25%. (I don’t care about grad loans.) Of course, the CBO forecasts that we won’t get that high in the next 10 years.</p>
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<p>It doesn’t. But they’ll be out of office when the fit hits the shan so what do they care? (This applies to all politicians, regardless of party.)</p>
<p>I say this as someone who would actually benefit from this legislation (my grad loan rates would go down over 1% for the upcoming year)- I still do not approve of this. The loan rates shouldn’t go anywhere NEAR 8.25 or 9.5. That’s absolutely insane!</p>
<p>Sorry if this is a stupid question, but we’re new to all this.
When do they consider the loan “taken out”? Initially my D was offered both sub and unsub loans in her FA package. Several months ago she had to “accept” her FA package. At the time she did this paperwork, I think the sub rate was the 3ish percentage and the unsub rate was the 6.8. Then last week when first semester bills came out we were told she lost her sub loans and it all went to unsub b/c a small athlete scholarship was listed as pending to post to her account. (She didn’t have to do any new paperwork…she could fill out a form to “reject or reduce” the unsub loans if she no longer wanted them.) The actual cash from the loan gets disbursed and posted to her account later.
Does the interest rate apply when the cash for the loan actually goes out (which hasn’t happened yet?).</p>
<p>I believe they consider the loan taken out when it is disbursed to the school.</p>
<p>I can’t speak to your daughter specifically, but I’m an incoming freshman and my fall tuition was due yesterday (but I completed counseling and the MPN before that), but the new bill says that any loans taken after July 1 have been retroactively set to the new rate. </p>
<p>So technically, your daughter should be getting the 3.9% rate.</p>
<p>ALL loans first disbursed on or after July 1 will be at the new rates, regardless of when they were accepted, originated, disbursed (even those loans already disbursed will be at the new rates, if they were first disbursed after July 1). Once it is law (the President still has to sign it), guidance will be given to schools. Because the MPN does not include an interest rate, no new MPN is necessary. At the recent NASFAA conference (THE finaid group), we were promised that schools would not have to reprocess anything. I imagine that Direct Loans will communicate the new rates to anyone who already has an originated loan. Since it takes time for the government systems to be updated, loans will probably continue to be originated at the old rates until the systems are updated - that is what happened with origination fees when they rose due to sequestration last spring. It will all get fixed in the Direct Loans system in due time, when the necessary system updates are finally made.</p>
<p>So unsubsidized and subsidized undergrad loans have the same rate, and the difference is that subsidized loans are interest free during schools? And also are they (subsidized) still interest free during grad school? Can anyone confirm this?</p>
<p>^ I don’t think the website would be changed yet. That info is based on the old program. The bill has not even been signed into law yet.</p>
<p>The website hasn’t changed, but the rule about subsidized grad loans has been in effect since 2012. I don’t think that’s changing with the new law nor will it be changing anytime soon.</p>
<p>I was saying that yes, subsidized and unsubsidized federal loans will have the 3.9% rate and the government will pay the interest on the sub loans while in school.</p>
<p>No, grads are still ineligible for subsidized loans.</p>