Last year at this time, the big issue in the news was the impending doubling of student loan interest rates. The interest rates of Subsidized Stafford Loans were set to double from 3.4% to 6.8%. Before this could happen, Congress stepped in, temporarily lowering them for another full year.

That extra year of low rates is now coming to a close, and rates are once again set to double. This is why Senator Elizabeth Warren has introduced the Bank on Students Loan Fairness Act. This act would allow students to borrow at the same rate as banks, which is about “one-ninth the amount that students are asked to pay”.

Here is a quick list of what this bill seeks to do:

• The bill would charge students a rate equal to the rates banks are getting from the government (for subsidized loans only)—a rate of less than 1%.
• Loans would be funded through the federal reserve, with administration by the Department of Education

Senator Warren gives an excellent overview in her introduction of the bill to the Senate Committee. Watch it below.

Families everywhere are currently sweating over financial aid award letters, trying to decipher aid and make the huge decision about which school is the right choice for both the student, and family finances. However, once the college decision is made, there is still a lot to do, including applying for student loans!

To help families through this award letter season, here is a breakdown of how and when to accept—or apply for—all types of student loans.

Perkins and Stafford Loans

When to Accept: April-May for Fall semester
How: For these loans, students can simply accept their loan amounts through the financial aid office. To finalize the acceptance and before they can receive the loan funds, students must complete a Master Promissory Note (MPN) online at StudentLoans.gov and complete an entrance counseling session as directed by the school.
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2012 Interest Rate Increase

Last year around this same time, a hot story in the media was the impending interest rate increase for Federal Direct Stafford Loans. Subsidized loans were at 3.4%, and with legislation running out, were set to double to 6.8% — the same as their unsubsidized counterparts. Luckily for students, Congress extended the lower interest rate for another year.

Projected Rates for 2013–2014

Once again, subsidized student loan interest rates are facing an impending increase, and are still up in the air. Without action, students may see an increase to 6.8% for the 2013–2014 academic year. This means that the only difference between subsidized loans and unsubsidized student loans would be that the former will not accrue interest while in school or in a grace period.

At this time it is unclear what actions may be taken to prevent student loan interest increases. We could see another one-year extension of the lower rate, or a system overhaul may even be possible. However, if nothing is done by July 1, 2013, students can expect to see the higher rate take effect for all new subsidized loans.

The Future of Federal Student Loan Rates

Private student loan rates are currently based on an index rate (such as the Prime or LIBOR indeces) plus a set margin. This allows for flexibility based on the current market. Federal student loan rates do not follow this structure, and are not tied to any economic factors, making it difficult to set competitive and affordable rates for borrowers.

To rectify this, organizations such as the New America Foundation have submitted proposals for better ways to handle federal loan interest rates. The proposals include tying interest rates to 10-year treasury notes and securities. Rates would be determined similarly to private student loans, with a variable base, plus a proposed margin of 3.0%.

While it is unclear which, if any, of these proposals will be enacted, it’s possible that borrowers could see more affordable rates in the near future.

For more information on interest rate proposals, read Solving the Interest Rate Quandary: Two Feasible Proposals on NASFAA.org.

You can refinance your mortgage, but can you refinance your student loans? The short answer is: possibly. Let me elaborate.

Refinancing is a tool commonly used by borrowers in the housing industry to lower interest rates. In regards to student loans, refinancing options are not widely available and depend on the type of loan you have.

Consolidating Federal Student Loans

Federal student loans (such as Stafford Loans) are not able to be refinanced but they can be consolidated. For federal loans, you must consolidate them through a Federal Direct Consolidation Loan which determines your new interest rate as a weighted average. Unfortunately, weighted averages do nothing to lower your rate.

However, there are still some benefits to consolidating your loans, such as:

• It lowers your monthly payment by extending the term of the loan
• It makes managing your repayment easier by combing multiple federal loans into one

Probably not the answer you were hoping for, but consolidation can be helpful to those struggling with high monthly payments.
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As you may have heard by now, the recent sequestration has huge implications for education across the board, and Higher Ed. is no exception. The budget cuts that took effect on March 1, 2013 will affect most types of federal student aid, including Federal Work Study (FWS), Federal Supplemental Education Opportunity Grants (FSEOG), Service Grants, TEACH Grants, and the Direct Student Loan Program. Fortunately for many students, Pell Grants were specifically exempt from the budget cuts.

Here’s a brief overview of what to expect from student aid programs going forward:

Federal Work Study and FSEOG Programs

Budget cuts of $86 million do not only mean a reduction in the FSEOG program, it could also mean a loss of on-campus employment for as many as 33,000 students if colleges do not step in with funding. While these campus-based programs are funded through the remainder of this year, program cuts will take affect for the 2013-2014 academic year.

Iraq – Afghanistan Service and TEACH Grants

For both of these federal grants, funding has been reduced for any award first disbursed during the sequester. It should have no impact on grants first disbursed before the cuts took effect.
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Every year we get the same question, so here is your answer:

For the 2013–2014 year, the FAFSA will be green, with a purple section for parents.

For the current year, 2012–2013 the FAFSA is orange.

In previous years:

• 2011–2012 FAFSA was Yellow
• 2010–2011 FAFSA was Blue

For detailed information on completing the FAFSA, visit FAFSAonline.

You may have heard of Stafford loans, PLUS loans, and private student loans, but do you really know the differences between them? Is one type of loan really better than the other? Let’s find out.

Subsidized Stafford Loans: The Best of the Best

Subsidized Stafford loans are the best type of student loan, and should be taken out before any other type. Stafford loans carry a 3.4% fixed interest rate, and the federal government will cover your interest payments until graduation. Interest will start to accrue after graduation, but you will not be required to make your first payment until 6 months after graduation. As an undergraduate, you can take out a maximum of $23,000 in subsidized Stafford loans in your lifetime.

Unsubsidized Stafford Loans: The Next Best Thing

Unsubsidized Stafford loans are federal loans that have 6.8% fixed interest rate. Contrary to their subsidized counterpart, interest accrues for unsubsidized Stafford loans while you are enrolled in school. However, similar to subsidized Stafford loans, your first monthly payment will not be due until 6 months after graduation. In addition, unsubsidized Stafford loans are also need based, and not impacted by your credit score. As a dependent, undergraduate student, you can take out a maximum of $8,000 for undergraduate studies. Unsubsidized Stafford loan limits vary based on your education status.
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Student loans have been all over the news in the past year, and borrowers are researching college financing options more than ever. In light of this, it’s important to know the facts so you can make better-informed decisions about paying for college.

1. 90% of private loans require school certification

Schools must approve a loan based on the student’s cost of attendance. This ensures that borrowers aren’t taking out more than they need, keeping them out of further debt.


2. More than 90% of approved applicants applied with a cosigner

Because many students have little to no credit history, most loans will require a credit-worthy cosigner to be approved. The good news is that cosigner release is now common among private loan lenders, allowing the cosigner to be released from obligation after a certain number of on-time monthly payments. (more…)

With all this talk of the impending Stafford Loan interest rate hike, many other regulation changes have been overlooked. Starting July 1, there are a handful of other updates to federal loan programs that borrowers should be aware of. These changes will not affect loans that were originated before July 1, only loans originated for 2012–2013.

Here’s a breakdown of what you can expect to see for this upcoming academic year:

Subsidized Stafford Loan Changes

No more subsidized loans for grad. students — Just like undergraduates, graduate students were previously able to receive both subsidized and unsubsidized loans. Starting this year, only unsubsidized loans will be available for grad. students at a 6.8% interest rate.

Elimination of interest subsidy for grace periods — Subsidized Stafford Loans were less expensive than their unsubsidized counterparts because 1) the interest rate was lower and 2) interest was subsidized while enrolled in school and during the 6 month grace period after leaving school. Starting this year, there will be no interest subsidy during grace periods, however, the subsidy will still exist while enrolled in school at least half-time.

UPDATED: Extension of reduced interest rate — As I’m sure most students have heard, a bill was set to expire this year, doubling the rates for Subsidized Stafford Loans to 6.8%. Luckily, Congress just passed a bill to keep the rate at 3.4% for the 2012-2013 year. Learn more about Stafford interest rates, past and present.
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Recently, the U.S. Senate rejected President Barack Obama’s plan to maintain the 3.4% interest rates on federal student loans. If both parties are unable to agree on terms by the July 1 deadline, the rate will jump to 6.8%.

Both parties agree that the rates should remain at 3.4%, but paying for an extension of this proposal would cost $6 billion. So the question is, where will this money come from?

The Democrats are proposing the money come from shutting down a Medicare loophole that business partners can currently use to save money, while the Republicans suggest that eliminating a preventative health fund could provide the funding.

Background

In 2007, when interest rates on subsidized Stafford loans were 6.8%, the Senate approved a law that temporarily reduced the rates to 3.4% for low and middle-income students. While the rates are expected to return to 6.8% on July 1, President Obama is urging legislators to keep those rates at a more affordable level for students and their families.

Learn more about Stafford loans so you can prepare for the upcoming semester.