Updated: 9/16/2010 9:00 AM ET|
Big changes come to student loans
After stripping banks of their role as middlemen in the federal student loan process, the government is now the primary lender to students.
Buried deep in the package of health care reforms that became law in 2010 are provisions that shake up the student loan industry.
By eliminating taxpayer subsidies to corporate middlemen who marketed and originated federal student loans, the changes will raise more than $60 billion over the next 10 years, with the savings being spent on more and bigger grants, easier repayment terms and even a little deficit reduction, the Obama administration says.
Here are answers to the most important questions students and parents may have about the new loan landscape:
How do the student loan reforms affect students wishing to take out federal loans for college?
Most student borrowers won't notice much difference, since most of the changes are behind the scenes. If anything, the new system is simpler and less confusing. No student is asked to -- or given the opportunity to -- shop for a Stafford loan, the most common kind of student loan available to all citizens attending undergraduate or graduate programs at least half-time.
All colleges must arrange for students to take their federal Stafford loans directly from the government. The biggest immediate downside for students is that some won't get the small discounts that certain lenders offered on such loans. But all undergraduates continue to be eligible to borrow Stafford funds of at least $5,500 (and, depending upon their age and year in college, up to $12,500) at an interest rate that cannot exceed 6.8% a year.
Students who qualify as "needy" continue to be able to borrow at lower rates of interest. All graduate students are eligible for Stafford loans of up to $20,500 a year at an interest rate of no more than 6.8%. Graduate students continue to be able to borrow their full cost of attendance (less any other financial aid) through the Grad PLUS program at an annual rate of no more than 7.9%.
How does the student loan reform bill affect parents wishing to take out a federal PLUS loan?
The bill should make things easier for many parents, as they are able to borrow PLUS funds directly from the federal government only.
In many cases, this saves parents money because the direct federal PLUS rate is capped at 7.9% a year, while private lenders often charged as much as 8.5%. In addition, some research shows that the federal government is more lenient on parents who have had credit problems and less likely than private banks to reject parents' PLUS applications.
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Wakeupnow. SS is not socialism, it is an insurance program, you pay into it. Same with medicare, you pay into it with every penny you make.
Noboy should get anything for free. The reason things are getting so expensive, is to cover all the "free" things people get.
Why should I have to pay for anyone else? When you keep getting things for free, at others expense, how are you going to learn anything?
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