<p>at the risk of getting political, the govt never said that it would lower rates by nationalizing student loans, and there was absolutely no reason to assume that it would. It’s just plowing the ‘profits’ back into other programs. Moreover, from a processing standpoint, and ignoring the bank profits – which pay taxes, btw, the government HAS to be higher cost processor - it’s wages are a lot more than what banks pay. (Indeed, it was quite easy to predict what would happen, and I did.)</p>
<p>Yes, the rates are ‘high’ relative to our borrowing rates from China. But note, these rates also subsidize the non-payers. They subsidize the students attending trade and for-profit schools (one particular for-profit is owned by the politically-influential Washington Post). And the rates also subsidize the Pells. </p>
<p>Congress is just ‘spreading the [rates] around.’ :)</p>
<p>Whatever the rate is the issue isn’t so much that but the actual debt-although higher rates of course make it harder to pay back-the issue is paying it back and trying to fund your own retirement.</p>
<p>Well, Pepper, the original thought was that OK, you sock your savings away in the IRA, so that when you’re 70 1/2, your investments will have grown tax-advantaged, you will have retired & thus your income will be way down upon withdrawal. And the theory was that you’ll have a 15% hit or less instead of a 30+% haircut. But who among us is absolutely sure we’ll be able to retire before that age, unless we’re forced out?</p>
<p>The WHOLE deal with the PLUS loan rates is that our investments are not doing above 7.9% unless we’re very savvy or very lucky.</p>
<p>As bluebayou points out the rate isn’t a market one for various reasons.</p>
<p>Tax deferred savings for retirement are a good tool but I always assume when I take them out my rate will be higher-I never brought into that lower rate promise. </p>
<p>I have always figured we’ll work until we drop.</p>
<p>If you have savings why would you take out a loan instead of paying when you can’t make that return on your investments? I am assuming we are talking about investments outside a qualified retirement plan.</p>
<p>I understand the mechanics behind the rates & the benefits of tax-free compounding. But it’s kind of like Jerry Seinfeld’s rap about getting a check after a great, expensive meal. “I have to pay for this? I’m not hungry any more!”</p>
<p>Post #123, a lot of my friends are already retired, not forced out. I believe our tax rate will be lower in retirement. Hopefully, we will retire before 70 1/2 but not needing the money until then.</p>
<p>The savings from having the Federal government directly issue college loans was already used for its intended purpose - to increase the maximum amount of Pell grants a couple years ago. However, because of the Recession, many more families were eligible for Pell grants, so the costs exploded beyond what was expected. Also, there was an increase in some questionable for-profit colleges who mainly exist to soak up Pell grants. As a result, to bring education spending back down, a deal was struck to cut back on excessive use of Pells and to eliminate interest subsidies for graduate and professional school loans. </p>
<p>Another big battle that is looming for next year is what to do with the perkins loan program. It expires July 2013. The president wants to replace it with a new loan and work study program that would reward colleges for high quality outcomes and efficiencies. However, Congress could just decide to kill it and keep the money. The colleges are required to return the money to the feds starting next year, and not issue new perkins, unless there is a reauthorization.</p>
<p>"“The rate is high” is relative. Student loan rates are still under what they were when I went to college. "</p>
<p>What was the prime rate when you went to college? What was the prevailing home mortgage rate when you went to college? What was the inflation rate when you went to college? (How much was a gallon of gas when you went to college?)</p>
<p>“Another big battle that is looming for next year is what to do with the perkins loan program. It expires July 2013. The president wants to replace it with a new loan and work study program that would reward colleges for high quality outcomes and efficiencies. However, Congress could just decide to kill it and keep the money. The colleges are required to return the money to the feds starting next year, and not issue new perkins, unless there is a reauthorization.”</p>
<p>WOW! thanks for the heads up on that! D got a preliminary estimate from an EA school that included a Perkins loan. I guess I’d better look into this more, because if we counted on it as part of a package, then it went away it would be a scramble.</p>
<p>Thanks again, and if anyone knows more about this please pipe up. - a new research project for me, just when I though we were getting into a short coasting phase.</p>
<p>The Perkins program is still good for another school year. After that, no one knows what will happen. </p>
<p>In your own case, that may be OK because the available amount of federally subsidized loans increases as the student gets older. </p>
<p>In other words, a student entering college in Sept. 2012 may be eligible for the same amount of subsidized stafford loans in their sophomore year of college as they had in combined stafford and perkins loans in their freshman year. For example, a new freshman might get 3.5 stafford and 2k of perkins loans for a total of 5.5 k and then get something like 5.5 k of staffords their sophomore year.</p>
<p>Parent Plus loans are essentially co signed loans, most parents just tell their kids to take care of them, not realizing their children either don’t understand how loans work or can’t afford the high fees. many private education loans require co signeees. Essentially this is what trips parents up, they are forced to sign loans because by bizarre federal laws their kids can soldier in Iraq but aren’t independent enough to go to college without mommy and daddy’s help. If kids were able to claim independence at 18 then every kid could get a loan without parents signatures. And costs in education would reduce by 10%, the estimated costs associated with collecting parent salary information and making special PLUS loans available.</p>