08.05.13 | Measure Twice: The Impact on Graduation Rates of Serving Pell Grant Recipients

Posted in Financial Aid, News by David Levy

The Advisory Committee on Student Financial Assistance, an independent committee providing expertise on student aid to Congress and the Secretary of Education, has recently released a policy bulletin, “Measure Twice: The Impact on Graduation Rates of Serving Pell Grant Recipients.”

The analysis raises concerns about tying federal student aid to measures of college performance such as 6-year graduation rates and academic progress. By examining correlations between a college’s six-year graduation rate and three other factors—the percentage of first-time students who are Pell Grant recipients, average student test scores, and the amount of endowment per student, the committee found that colleges with more Federal Pell recipients and fewer financial resources tend to have lower graduation rates. “The [ACSFA] analysis finds that these three inputs are powerful determinants of 6-year graduation rates at nonprofit 4-year public and private colleges.”

As Mark Kantrowitz, Publisher of Edvisors, has noted, “College graduation rates correlate with academic performance and other risk factors, so refocusing the Pell Grant program on completion will shift eligibility from financial need to academic merit. High-risk students – such as first-generation college students, low-income students, students who are single parents, students who lack a high school diploma, students who work full-time while enrolled and students who enroll part-time – are less likely to graduate. This represents an abandonment of the basic principle of college access that every student should have an equal opportunity to pursue a college education without regard to ability to pay. Refocusing the Pell Grant program on completion will introduce a bias in favor of Bachelor’s degree programs at more selective colleges.”

08.02.13 | The Usual Mistrust or a Preview of More Bipartisanship?

Posted in Financial Aid, News, Stafford Loan, Student Loans by David Levy

Federal Student Loan Compromise

This content was updated on 7/9 to reflect the passage of the Smarter Solutions for Students Act

With bipartisan support, on July 31, 2013, the House of Representatives passed H.R. 1911, the Smarter Solutions for Students Act (also known as the Bipartisan Student Loan Certainty Act, as amended by the Senate), by a vote of 392 to 31.

President Obama  signed the legislation into law on August 9, 2013.

Under the new law, interest rates on new loans each July 1 will be based on the last 10-year Treasury auction in the previous May. The specific interest rates will be as follows:

  • Undergraduate Students (Subsidized and Unsubsidized Federal Stafford Loans): 10-year Treasury + 2.05% with an 8.25% cap
  • Graduate and Professional School Students ( Federal Stafford Loans): 10-year Treasury + 3.6% with a 9.5% cap
  • Parents and Graduate/Professional School Students (Federal Parent and Federal Grad PLUS Loans): 10-year Treasury + 4.6% with a 10.5% cap

Based on the current 10-year Treasury rate, this will yield interest rates of 3.86%, 5.41% and 6.41%, respectively, for new loans this year, made after July 1, 2013. (more…)

07.25.13 | Doubling Interest Rates: The Devil is in the Details

Last night, the Senate passed a bill to address the doubling of the interest rate on new subsidized Federal Stafford loans.

The Congressional Budget Office (CBO) estimated that the legislation will save the federal government $715 million over ten years, which would be applied to deficit reduction. Many feared that the multi-partisan Senate deal would fall apart because the CBO found that an earlier version would cost $22 billion over ten years.

Under the Senate-approved legislation, interest rates on new loans each July 1 would be based on the last 10-year Treasury auction in the previous May. The specific interest rates would be as follows:

  • Undergraduate Students (Subsidized and Unsubsidized Federal Stafford Loans): 10-year Treasury + 2.05% with an 8.25% cap
  • Graduate and Professional School Students ( Federal Stafford Loans and Federal Grad PLUS Loans): 10-year Treasury + 3.6% with a 9.5% cap
  • Parents (Federal Parent PLUS Loan): 10-year Treasury + 4.6% with a 10.5% cap

Based on the current 10-year Treasury rate, this would yield interest rates of 3.9%, 5.4% and 6.4%, respectively, for new loans this year, made after July 1, 2013.

According to Mark Kantrowitz, publisher of Edvisors, “This is still an interest rate increase masquerading as a decrease. Interest rates are at historically low levels and have nowhere to go but up. We can expect interest rates to start increasing by about 1.5% per year in 2015.” These federal educational loan rates are expected to climb as the economy improves and it becomes more expensive for the government to borrow money. Thus, interest rates on new loans will probably exceed the current 6.8% rate in 2017 and certainly by 2020. “So, while students enrolling in college now will save money on their student loans, their younger siblings will pay a lot more. A few years from now students and parents will be demanding a return to fixed 6.8% interest rates.”

07.24.13 | 5 Ways to Cover College Costs

Paying for CollegeWhether you’re a soon-to-be freshman or second semester senior, it is never easy to figure out how to cover the costs of college. With tuition and hidden fees of private colleges averaging out to about $40,000 per year, many of you are still wondering how your family is expected to pay for $35,000 of your education, even after having received your Student Aid Report (SAR) three months ago. To help you out in your pursuit of a college degree, here are 5 ideas for paying for college when Federal aid comes up short.

Befriend the Financial Aid Office

If you are disappointed by the amount of financial aid that you receive, try talking to your financial aid office. Many colleges have an appeal process for financial aid, so get on a first-name basis with someone in the financial aid office and see what else can be done.

Search for Scholarships

There are millions of dollars in scholarships that go unclaimed every year, so why not spend a few days this summer searching and applying for as many scholarships as you can find? On average, you will win 1 out of every 10 scholarships that you apply for, so don’t get discouraged. For starters, try visiting our recommended scholarship search website, or try winning scholarships through the ScholarshipPoints program. (more…)

07.23.13 | How America Pays for College — 2013 Report

Posted in Financial Aid by David Levy

Sallie Mae has issued its sixth annual report, How America Pays for College. David Levy breaks down the key findings:

  • Most families still see a college education as an important investment in their child’s future.
  • More than 90% of families believe their students will earn the degree they are seeking.
  • Despite reports of increased reliance on educational loans, families view grants and scholarships as the top resource to pay for college.

Because of the post-recession economy, families have reduced the share they contribute to college expenses and have looked for ways to make college more affordable. These cost-cutting strategies include: choosing less expensive post-secondary institutions; increasing work hours; having the student live at home; and utilizing education tax credits.

As the economy continues to improve, parents’ attitudes about the value of college and their ability to finance this second largest family expenditure are slightly more optimistic.

Parents remain worried about how to finance college, but with the economic recovery underway, this concern seems to have decreased over the past three years. As consumer confidence increases (as it has over the past few months), it will be interesting to see if consumer expenditures for college and its related costs also increase, too.

To read the report, find the summary and PDF download links here.

Mark-Kantrowitz-EdvisorsDavid Levy is Associate Editor of the Edvisors Network. David brings 30 years of experience as Director of Financial Aid at some of the nation’s leading colleges, including the Scripps College, California Institute of Technology and Occidental College. He is respected by students, parents and financial aid professionals nationwide because of his extensive outreach and volunteer activities, his extensive knowledge of financial aid and his leadership in helping to simplify the aid application process.

07.19.13 | College Costs Out of Control

Today, 20% of adults owe money on student loans, and 57% are worried about repaying these loans. Many have expressed concern about the recent legislation which increased the interest rate of subsidized loans to 6.8%, but the problem is not the cost of student loans. As stated by Mark Kantrowitz in a recent article published by MarketWatch, this will not double loan payments, but rather, will lead to about a 17% increase in monthly payments.

The real problem is the rising cost of college, and decline in government grants. A recent study by Gallup indicates that only 15% of Americans think that it would be reasonable for colleges to charge students more than $20,000 per year. Yet, many schools, such as MIT, Cornell, and Harvard, charge over $50,000 per year, after tuition and living expenses are taken into account. (more…)

07.12.13 | Pros and Cons of Private Student Loan Consolidation

Congratulations on finally finishing college.  While it’s great to be working and living on your own, you now get to pay your own bills (and yes, now you finally understand why your parents always yelled at you for taking more than 10 minutes in the shower).  Amongst these bills, the most pressing may be those student loan repayment letters that start to arrive all too soon after graduation.  With student loan debt averaging out to $23,000 per borrower, you could end up paying $200 per month for the next 15 years!

Fortunately, there is an alternative: college loan consolidation. Student loan consolidation enables you to lower your monthly payments and pay back your loan over a longer period of time. To give you a better idea, let’s explore the pros and cons of consolidating your student loans. (more…)

07.01.13 | 3 Things You Should Know About the Stafford Loan Interest Rate Increase

Posted in News, Stafford Loan, Student Loans by Student Loan Network Staff

As you may have heard, the interest rate on subsidized Stafford loans just increased from 3.4% to 6.8%, effective July 1, 2013. Congress wanted to keep rates down, but the deadline hit before all parties could agree on a course of action. Here’s what you need to know about these changes.

1. It only affects new loans

I’ve received a lot of questions lately about the impact of this rate increase. It seems like graduates everywhere are concerned that their student loan payments will soon be skyrocketing. The good news is, it’s not retroactive — meaning it won’t affect any subsidized loans originated before July 1, 2013. So for borrowers who are currently repaying older loans, don’t worry, you’re in the clear.

However, the new rate will impact loans originated after July 1, 2013. This means any new subsidized loans will have the 6.8% rate. Despite this rate hike, subsidized loans are still a better deal for borrowers because the interest subsidy remains intact.

06.26.13 | Will Student Loan Interest Rates Double on July 1?

Posted in Financial Aid, News, Stafford Loan by Mark Kantrowitz

If Congress does not act, interest rates on new subsidized Stafford loans will double from 3.4% to 6.8% on July 1, 2013. Previously originated subsidized Stafford loans and all other education loans will not be affected.

Doubling of the interest rates certainly sounds dramatic, but the actual impact on students will be more muted.

Each year, less than a third of undergraduate students receive federal subsidized Stafford loans. The average subsidized Stafford loan is $3,357, based on data from the 2007-08 National Postsecondary Student Aid Study (NPSAS), with average subsidized Stafford loan debt at graduation of $9,008 ($11,329 for Bachelor’s degree recipients). Only 3% of subsidized Stafford loan borrowers graduate with debt equal to the aggregate limit of $23,000.

Assuming a 10-year repayment term, doubling of the interest rate on $3,357 in debt increases the monthly loan payment by less than $7. On $9,008 in debt, the increase is less than $18; on $11,329 the increase is less than $24; and on $23,000 the increase is less than $48.

Doubling the interest rate does not double the monthly payment. Most of the monthly payment goes to principal, not interest. For example, on a 10-year term, increasing the interest rate from 3.4% to 6.8% increases the monthly payment by about one sixth (16.9%).

So while the interest rate increase will increase borrowing costs, it is not a major disaster.

Focusing on the interest rates, on the other hand, is a distraction from the real problem (more…)

06.14.13 | 5 Solutions to the Subsidized Student Loan Debate

Posted in Financial Aid, News, Stafford Loan, Student Loans by Student Loan Network Staff

Over the past month, you may have heard about the impending subsidized student loan interest rate increase, as politicians frantically work to come to a consensus before July 1. Right now, subsidized student loans interest rates currently stand at 3.4%, but will increase to 6.8% unless a new bill is passed by July 1.

With this decision having a major impact on your future, it is important to stay up to date with the issue and the suggested solutions.

1. Default Solution: Increase to 6.8%

As stated above, if politicians fail to come to an agreement, the interest rate for subsidized loans will increase to 6.8%.

2. Democratic Solution: Student Loan Affordability Act

Most Democrats in the House of Representatives argued for a two-year extension on the 3.4% interest rate, which would maintain the current interest rate and bring the question to Congress again in two years. However, this bill was rejected in the Senate on earlier this month.

3. Senator Elizabeth Warren’s Solution: Student Loan Fairness Act

Senator Warren proposed a bill which would dramatically cut the interest rate on subsidized loans. Citing the fact that the student loan debt now exceeds $1 trillion, Warren proposed cutting the interest rate to 0.75%, which is the same rate that banks are able to get from the government. For more information, please see our recent article on the details of Warren’s bill.