US Student Loans: cuts in higher-education student-loan programs

Mishigan, Jan 26, 2006
Gary Singh

NRI parents and NRI students are worried about cuts in higher-education student-loan programs by U.S. Department of Education's Direct Loan Program

U.S. Department of Education's Direct Loan Program, which provides loans to help students pay for education after high school. The Department of Education acts as a lender, providing funds for Stafford loans (for students) and PLUS loans (for parents) in the same amounts as the Stafford and PLUS loans offered through the Federal Family Education Loan Program. (In the FFEL Program banks and other private lenders provide these loans.)

According to Joel Havemann, Times Staff Writer of Los Angles times, President Bush, caught off guard Monday by a question about cuts in higher-education student-loan programs, said the reduction in costs would come at the expense of lending institutions, not students.

Representatives of higher-education associations disagreed moderately. Leaders of student groups took vehement exception.

During a question-and-answer session with students at Kansas State University, sophomore Tiffany Cooper asked, "Recently, $12.7 billion was cut from education, and I was just wondering, you know, how is that supposed to help our futures?"

"The education budget was cut?" Bush responded. "Say it again. What was cut? At the federal level?"

She repeated the question and clarified that she was referring to student loans.

"Actually," Bush finally said, "I think what we did was reform the student-loan program.

"We're not cutting money out of it. In other words, people aren't going to be cut off the program. We're just making sure it works better."

Driven by rising education costs and easier access to funds, total student loan debt has ballooned during the past decade, economists said. About two-thirds of students now rely on loans to graduate, compared with less than half a decade ago, according to a report by the Center for Economic and Policy Research, a Washington, D.C.-based think tank.

This combination of forces has the potential to create a new class of working poor -- those who have fallen behind before they've had a chance to get ahead. These are secret strugglers. They aren't counted anywhere, and no one is sure how large their ranks are, although anecdotal evidence would suggest they are increasing. They don't necessarily look, act or identify themselves as financially challenged. They are rich in education, but they've leveraged their futures for the privilege.

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Student Loans: Outflank The Hikes Ahead

By Aaron Pressman
Jan 25, 2005

College tuition costs have been rising faster than inflation for decades, but budget cutters in Congress added a little extra pain for parents and students this year. As part of a $40 billion budget-reduction package expected to be signed into law soon by President George W. Bush, lawmakers cut $13 billion from the student loan program.

Since much of that money subsidizes interest costs on student loans, borrowers will face higher rates. The rate on Stafford loans to students jumps to 6.8% starting on July 1, from the current 4.7%. Parent Loans for Undergraduate Students, or PLUS loans, rise to 8.5% from 6.1% currently. The borrowing limit for subsidized loans is $23,000 for an undergraduate and $65,000 for graduate students.

Strategic Moves
It's not quite as bad as it looks, however. The old rates were reset annually, while the new rates will be fixed for the life of a loan. And because the Federal Reserve Board has hiked rates for the past year, those old bargain rates were set to rise in July anyway, to 6.5% on Staffords and 7.4% on PLUS loans. The revised program also phases out a 3% origination fee charged on federally backed loans, but many lenders, such as Citibank (C) and Sallie Mae (SLM), had already decided last year to absorb the fee for competitive reasons.

You can use several strategies to cushion the blow. First, if you have already graduated and haven't consolidated all your loans -- or are graduating this spring -- be sure to do so before June 30. That allows you to lock in a 4.7% rate for the life of the loan. (If you're still in school, ask your lender if you can consolidate now.) For those with kids heading back to school in the fall, spend more time looking for local or specialized grant programs for your budding biologist or debate champion. The Web site collegeanswer.com has a searchable database of more than $15 billion worth of scholarships available every year (www.collegeanswer.com/paying/scholarship_search/pay_scholarship_search.jsp). Many states also have their own loan programs, some with more generous terms than the feds'. Be sure to check both the state where you live and the state where the student attends school.

Some parents may be thinking about a variable-rate private loan instead of tapping the revised PLUS program. Such loans are available at 7%, but there are downsides, warns Frank Ballmann, executive vice-president at Affinity Direct, a student loan consolidation lender. Rates on private loans can rise dramatically if short-term interest rates head up further, with caps as high as 20%. If a parent dies or is disabled, the obligation remains, whereas PLUS loans are retired.

Even with higher rates, there are two ways to trim costs after graduation. Sallie Mae and other private lenders typically cut their rates by 0.25 percentage points for those who make their payments electronically out of a checking account. Borrowers who make 30 to 48 payments in a row on time can get their rate slashed by an additional full percentage point.

If you have loans made directly by the government, it may be a good idea to consolidate them with a private lender. That will allow you to take advantage of those nifty per

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