05.07.08 | New Parent PLUS Loan Limits

Posted in PLUS Loans, Repayment by Kristin Morris

Via NASFAA:

Beginning July 1, 2008, HR 5715 passed by Congress will allow parents to choose to defer payments on a PLUS loan until six months after the date the student ceases to be enrolled at least half time. Accruing interest could either be paid by the parent borrower monthly or quarterly, or be capitalized quarterly.

Special Provision for Parents Delinquent on Mortgage Payments

The bill would allow lenders to consider parents eligible for PLUS loans even if, during the period January 1, 2007, through December 31, 2009, the parents are or were:

* No more than 180 days delinquent on a mortgage payment on their primary residence

* No more than 180 days delinquent on any medical bill payments

* No more than 89 days delinquency on the repayment of “any other debt”

05.07.08 | New Stafford Loan Limits

Posted in Student Loan Links by Kristin Morris

From NASFAA:

Increase Annual and Aggregate Stafford Loan Limits

HR 5715, as passed by Congress, will increase the following loan amounts for loans first disbursed on or after July 1, 2008:

* Increases the additional unsubsidized Stafford annual limits by $2,000 for independent undergraduate students, and for dependent undergraduate students whose parents cannot borrow PLUS, but appears to reduce the additional unsubsidized limit for teacher certification to $6,000 for “undergraduate” students

Note – The original legislation also increased the additional unsubsidized Stafford annual limit for graduate and professional students by $2,000, but that provision was later eliminated by an amendment in the House

* Increases unsubsidized Stafford limits for dependent students by introducing additional unsubsidized amounts of $2,000

* Increases aggregate unsubsidized loan amounts for undergraduate dependent students from $23,000 to $31,000 (minus subsidized borrowing) but does not appear to extend additional unsubsidized funds for preparatory coursework or teacher certification for these students.

* Increases aggregate unsubsidized loan amounts for undergraduate independent students from $46,000 to $57,500 (minus subsidized borrowing) .

03.20.08 | Unintended consequences of Stafford Loan rate changes

Posted in PLUS Loans, Student Loan Links by Kristin Morris

As far back as 2001, Congress, looking at incredibly high interest rates on federal student loans (8.25% statutory maximum on the Stafford loan, 8.5% on the PLUS loan) decided to legislate a mandatory fixed rate of 6.8% on Stafford loans beginning July 1, 2006. At the time, it seemed like a good idea to legislators to try “fixing” market prices. Prior to that legislation, Stafford and PLUS loans had variable rates of 2.3% and 3.1% + the 91-day Treasury Bill rate at the last auction in the month of May.

Fast forward to today – 2008. With the economic uncertainty, the 91-day Treasury Bill’s current rate is a shockingly low 0.21% (as of noon 3/20/08). If Stafford loan rates were still variable rate loans and rates were set today, the Stafford loan would have a variable rate of 2.51% – lower than student loan interest rates have ever been. For students now paying 6.8%, a rate of 2.51% would mean paying about $50 less per month on $20,000 in federal student loans. Had Congress also left student loan consolidation alone (not reducing subsidies to lenders, thereby reducing availability of consolidation loans to students) that same rate change would mean paying 56% less interest for the life of the loan.

This is a lesson for all of us – when government attempts to manage free markets, unintended consequences may result, and those consequences may be financially quite harmful in the long term.

02.20.08 | Will student loans go away?

Posted in Student Loan Links by Kristin Morris

There’s been much talk recently about some student loan companies withdrawing from the student loan marketplace, and whether students will be materially harmed by a smaller marketplace. The short answer? No.

Federal student loans such as the Stafford loan are unaffected by changes in credit insofar as the borrower is concerned. Stafford federal student loans have no credit requirements.

As for private student loans, there will almost certainly be changes in who is eligible for private student loans. Higher credit limits and cosigners required are the most likely outcomes, and in fairness, that’s not a bad thing. It is in no one’s best interests to issue a loan to someone who cannot repay it. The borrower loses, the bank loses, everyone loses, so if students and families with poor credit are turned down for a private loan, it will mean they need to energize their scholarship search efforts to make up shortfalls in financial aid.

If you haven’t done so already, be sure to file your FAFSA, too.

02.08.08 | Do Stafford student loans need to be paid back if a company goes out of business?

Posted in Student Loan Links by Kristin Morris

A question recently came up on the blog – if a student loan company goes out of business, do the loans need to be repaid?

The answer is an unequivocal yes. Except for a few rare circumstances (such as a loan being fraudulently issued) borrowers are always obligated to repay the loan.

More often than not, if a student loan lender goes out of business, the loans are sold as part of the company’s liquidation. They’re treated just like office furniture or any other tangible asset, and buyers will buy the loans (and the potted plants and desks). The borrower will receive notification that their Stafford loan has been sold or transferred to a new company, and that they must now make payments potentially to a new address.

That’s one of the many reasons why it’s important to stay in touch with your lender and keep them updated on your address and contact information – otherwise, you could potentially go into default on your federal student loans and not even know it.