What happen to the 1% or 3% student loans we used to have in the 70-80s?

Paying for College
1

<p>Luckily we don't have to borrow for our kids education, hence I didn't pay any attention to the package until recently I looked closer. These rates are horrible at 7-8% and interest accrual starts immediately...</p>

<p>I still recall during the 70-80s when was in college, the student loan rates were low and the terms was extremely good. (no repayment until months after graduation) And interest rates for T-bill and mortgage were over 12% then...
I thought interest rate is supposed to be low now with LIBOR rate below 1%, so nobody wants to invest in our education any more?</p>

<p>Comments?</p>

2

<p>Stuff’s a lot more expensive now. Inflation and the rising cost of education makes it more difficult to keep those interest rates that low.</p>

3

<p>They went the way of leisure suits.</p>

<p>Seriously, I think part of what happened is too many students defaulted on those generous federal loans. Now we have the private market involved, and when there is no collateral, the rate can be something like LIBOR+11.</p>

<p>And even though we still have subsidized federal loans (not 3%, though), the amount has not kept up with the pace of tuition inflation, so the federal loans don’t have the same impact that they used to.</p>

4

<p>It will get worse. The Perkins program expires next year, and is likely to be replaced with a program with higher rates. The subsidized Stafford loans are also scheduled to increase in interest rates next year.</p>

5

<p>Subsidized Staffords interest rates now and in upcoming years:</p>

<p>[FinAid</a> | Calculators | Education Loan Interest Rates](<a href=“Your Guide for College Financial Aid - Finaid”>Your Guide for College Financial Aid - Finaid)</p>

<p>Please note that the College Cost Reduction and Access Act of 2007 cut the fixed interest rates on newly originated subsidized Stafford loans for undergraduate students to 6.0% (2008-09), 5.6% (2009-10), 4.5% (2010-11) and 3.4% (2011-12), with a return to 6.8% in 2012-13. These cuts are available only to undergraduate students, not graduate students, and only for subsidized Stafford loans, not unsubsidized Stafford loans. Those loans remain at a fixed rate of 6.8%.</p>

6

<p>Also the GSL’s in those days were for a limited pool (you had to have some amount of financial need) and not available to the general populace. I guess you could look at that 2 ways - a far greater number of loans given out now could imply a larger risk or maybe since anyone can get them they aren’t so much an assistance program.</p>

7

<p>The future most likely holds only unsubsidized loans. I hear more & more rumblings about cutting loan subsidies.</p>

<p>Students were also limited to $2625 per year throughout the 80’s.</p>

8

<p>“Also the GSL’s in those days were for a limited pool (you had to have some amount of financial need) and not available to the general populace.” </p>

<p>Hmmm… that’s not the way I remember it. I remember people saying they had no need but if they took out the loan and put it in the bank (at 5% those days), they could repay the loan at the end of college and pocket a tidy sum.</p>

9

<p>^^I remember it the way you do, 2collegewego.</p>

10

<p>

That was why I put down the T-bill rate and mortgage rate were around >12%. One can easily get short term CD earning 5% those days.</p>

11

<p>I guess it depends on exactly when you went to school. I graduated in 82 when they were again restricted.</p>

<p>Although guaranteed student loans were initially limited to low- income students,
eligibility for the loans was gradually expanded. In 1978, the program was opened to all
students regardless of income, only to be again restricted beginning with the 1982-83
academic year to students with family incomes below $30,000.
With the troubled economic conditions and skyrocketing educational costs of the 1970S and 1980’s, more
students have come to rely upon guaranteed student loans to finance their educations.
The increased need for financial assistance, coupled with the broadening of student
eligibility for guaranteed loans, has resulted in an explosion of the number of students
applying for and receiving such loans.</p>

12

<p>Fascinating. That explains a lot. I guess they were restricted when I graduated high school which explains why I didn’t have a GSL when I first went to college. I do remember older relatives and friends putting the $ in the bank.</p>

13

<p>Mine were 6 and 9 percent, between 1977 and 1984. (I rmember filling out a form that said my parents made 30K…or maybe that was the value of my house… which I did not think was poor at the time. Welfare was poor, everything else wasn’t.) Husband’s were WAY higher interest, and around the same time, and probably lower income. I forget the name, but I think it was specific for grad/med school. HPSL, or health professions student loan sounds familiar. I’m pretty sure one of the “Maes”, maybe Sally, is involved…does that mean it’s a “private” loan? He is still paying, and he graduated in 1988.</p>

<p>I think we were both responsible for our own loans, or at least I don’t remember anyone else having to sign anything.</p>

14

<p>HEAL! Husbands was a HEAL!</p>

<p><a href=“minorityhealth.org”>minorityhealth.org;

<p>"According to the American Medical
Student Association: “Unlike other federal loans in which the government subsidizes the interest rate and pays interest while the student is in school, the HEAL program is totally unsubsidized. The HEAL program is also the only federal loan program with compounding rather than simple interest. . . . A student who borrowed $8,000 a year through HEAL at 18 percent interest each year for four years of medical school would owe $48,084.14 at graduation. If interest is deferred until postgraduate training is completed, the interest compounding on the original $48,084.14would bring the new principal and added interest to $95,810.66, and the monthly payments. . . would be $1,453.45 for the next twenty-five years.”</p>

<p>Stumbled upon this…</p>

<p><a href=“http://www.defaulteddocs.dhhs.gov/preamble.htm[/url]”>http://www.defaulteddocs.dhhs.gov/preamble.htm&lt;/a&gt;&lt;/p&gt;

<p><a href=“http://www.defaulteddocs.dhhs.gov/discipline.asp[/url]”>http://www.defaulteddocs.dhhs.gov/discipline.asp&lt;/a&gt;&lt;/p&gt;

<p>Note: MDs listed under Allopathic Medicine</p>

<p>Discipline Total Amt Due </p>

<p>Allopathic 116 $14,894,635<br>
Chiropractic 526 $52,086,448<br>
Clinical Psychology 26 $2,258,709<br>
Dentistry 197 $33,112,200<br>
Health Administration 1 $47,799<br>
Optometry 19 $1,273,884<br>
Osteopathy 31 $7,178,620<br>
Pharmacy 13 $766,942<br>
Podiatry 69 $13,730,682<br>
Public Health 3 $299,876</p>

15

<p>This is interesting (well…more interesting than work…)…I only understood the part on page 6.</p>

<p><a href=“http://www.ticas.org/ticas_d/money_for_nothing_report.pdf[/url]”>http://www.ticas.org/ticas_d/money_for_nothing_report.pdf&lt;/a&gt;&lt;/p&gt;

<p>Example 1: In times of high interest rates, the formula
reduces subsidies. Under interest rates prevalent in
1979, the new formula cuts lender returns from 13.5
percent to 10.25 percent.10
Regular Loans:
Student Rate Special Allowance: Lender Return:
7.0% 6.5% 13.5%
Loans Made with Tax-Exempt Bonds:
Special Allowance: Lender Return:
3.25% 10.25%</p>

<p>Example 2: But with the lower rates that have
been more typical in recent years, the 9.5 percent
floor creates windfall profits. In the second quarter
of 2004, regular loans earned a 3.57 percent return,
including only 0.15 percentage points in federal subsidies.
Loans eligible for the 9.5 percent floor collected
25 times more in federal subsidies.11
Regular Loans:
Student Rate Special Allowance: Lender Return:
3.42% 0.15% 3.57%
Loans Made with Tax-Exempt Bonds:
Special Allowance: Lender Return:
6.08% 9.5%</p>

<p>The 1993 Attempt to Repeal 9.5 Loans. In early
1993, the borrower interest rate on regular new student
loans fell to 6.15 percent, highlighting the absurdity of
guaranteeing a 9.5 percent return on tax-exempt
loans.12 Congress decided to try again to fix the
problem.The Omnibus Budget Reconciliation Act of
1993 eliminated the 1980 formula for all loans
financed with new student loan bonds. However,
responding to arguments that bond investors need
stable, assured returns, it kept the 1980 formula for
loans backed by existing bonds, including loans made
with collections from earlier loans. It seemed like a
limited liability, confined only to pre-existing bonds,
and involving non-profit and government entities.</p>