Student Loan Help

As you may have seen in the press or on the nightly news, there is a lot of activity taking place in Congress regarding student loans. The topic is a political winner - which politician wouldn’t want to stand in front of his/her constituents and say they increased the Pell Grant, or reduced interest rates? Unfortunately, those changes have to be paid for, and at a cost of $6 Billion or more nothing is settled. While it’s important to note that many changes to the proposed Student Loan Bills are forthcoming, it’s also worth staying on top of the legislative changes to see how they may affect you and your student loans.

So far, the House has passed a bill which would cut the interest rate on subsidized Stafford undergraduate loans from the current 6.8% to 3.4% over a period of five years. As described in an earlier post on this blog, the government pays the interest on subsidized Stafford loans while students are in school. The student picks up the payments when they leave school. About 5.5 million students would benefit from this rate cut, but unfortunately those recieving unsubsidized loans and graduate students don’t get a rate cut. Also, parents taking out Parent Plus loans are also not impacted. The lower interest rates would apply to loans originated on July 1, 2007 or after. If you are considering a Stafford Loan for the 2007-08 school year, it’s still best to apply early (after completing your FAFSA! - see earlier post) as the funds will not be disbursed until late summer/early fall.

I’ll stress again that this bill is not yet final - the House version still needs to be reconciled with the Senate’s proposal. Preliminary analysis of the Senate bill indicates that there will need to be some negotiation between the two chambers. Senator Kennedy has proposed raising the maximum Pell grant from $4,050 to $5,100 - Pell grants do not have to be repaid. Doing this in addition to reducing the interest rates will cost much more than the current $6 Billion price tag - a cost Kennedy would like banks to absorb in addition to offering incentives to schools to allow more students to borrow directly from the government.

Once the Democratic leaders of the House and Senate negotiate a compromise bill, they must work with the Republicans and the Administration to get it passed into law. A long process lies ahead. For now, do what you would have done - complete the FAFSA (get started at FAFSAOnline.com), look for grants and scholarships (studentscholarshipsearch.com), and apply for financial aid at your school. In addition, stay on top of the news - or come back to read these blogs - so you are aware how these legislative changes impact you and your strategy for maximizing your financial aid. Good luck!