Student loans get more expensive
Although Congress has kept the interest on new subsidized Stafford loans at 3.4%, other changes have made federal student loans more costly.
The federal government giveth and taketh away from students who need to borrow money for college.
Yes, the rate on subsidized Stafford student loans issued after July 1 will remain at 3.4%, rather than double to 6.8%, thanks to votes in Congress recently.
However -- and that is a big HOWEVER -- other changes took effect on July 1 that will make some federal student loans more costly than they've been. Those changes were passed by Congress during last year's ugly wrangling over the federal budget and debt ceiling deals.
No grace period. For subsidized Stafford loans taken out after July 1, the federal government will no longer pay the interest for the first six months after graduation. (The feds will, thankfully, continue to pay the interest on new loans while the undergraduates are still in school.)
What does that mean for the typical college student? Once you graduate, you'll still get six months of breathing room before your first student loan payment comes due. However, the interest that accumulates in that six months will be added to your loan principal.
By one estimate, that will be add $57 to the average $3,357 loan when the interest rate is 3.4%, or $114 when the rate doubles on new loans in a year.
Good news: The grace period is set to return on July 1, 2014. (Post continues below video.)
No subsidized loans for graduate students. It's even worse for students seeking advanced degrees. As of July 1, graduate students are no longer eligible for new subsidized federal loans. That means they'll be responsible for paying the interest that accrues on new federal loans from the very first day they borrow the money. (They also didn't get a break on interest rates in last week's deal, so Stafford loans come with a 6.8% rate. The federal Grad PLUS loans have a slightly higher rate of 7.9%.)
By one estimate, the end of the federal subsidy will add $7,000 to the cost of the average grad school loan. Let's hope that extra schooling proves worth it.
And that's not all. Other changes:
- A family now has to have an income of no more than $23,000 to qualify for an automatic zero family contribution on the Free Application for Federal Student Aid (FAFSA), down from $32,000.
- Needy students will be eligible for Pell grants for only 12 full-time semesters. There was no limit before. This sounds reasonable. One smart way to reduce college costs is to earn a degree in four years or less.
What's a student to do? Pauline Abernathy, vice president of the nonprofit Institute for College Access and Success, told U.S. News & World Report that students should discuss repayment options -- including the Income-Based Repayment and Public Service Loan Forgiveness programs -- with their financial aid office before they leave school to find out how to become eligible.
Better yet? Take steps to minimize the amount of money you need to borrow.
More from MSN Money:
Do what i did...take 5 years and work as much as possible during the summer AND school year. I only took 12-14 hours a semester and then worked 20-30 hours a week
No parties, no frats, no sports, no new clothes (thrift), no anything and a boring in-state school
College wasn't fun at all but i paid for my entire school myself (no loans except one 800 dollar loan so i could work in a medical lab which paid less but gave me experience)
My parents didnt have to help out much (a cheap beater car and paid my insurance)
To graduate basically loan free and without burdening my parents was worth the hard 5 years
Eliminate all student loans from the government. The loans help the teachers and the college administrators. Colleges don't have any incentives to control costs. Students don't need a beautiful campus. They don't need a million dollar weight room or a fancy building. Switch teachers to 401ks and make them work five days a week. The cost of college rises significantly more than inflation every year.
Student loans are just that, loans. They have to be repaid which doesn't take anything from the tax payer. If America wants to compete with other countries we need to keep our next generation of employees educated. We do however need to work with industry to shif the focus to programs where there is demand but few employees to fill the need. We also need to keep the brightest and the best in America if we want to continue to be innovators and leaders in industry and science.
the problem in this country is the tax payer wants something for nothing. Americans want good jobs, safe roads and infastructure. We want to be leaders in industry and commerce. We want to be safe and we want our banks and investments to be safe but we don't want to have to pay for everything. Well guess what, you get what you pay for. If you don't want regulations , then don't cry when someone walks away with y our investments. If you want to be safe, then don't cry when someone breaks into your house and has more firepower than you do and there are no police to respond because you cut their jobs so you wouldn't have to pay higher taxes. Oh and if you can't read this then you probably couldn't find your way to vote in the first place.
All I can say for all these new young Americans is to think carefully before decided to go off to college because of the expenses that will occur at the end. We are leaving in a different world now and we need to take life very serious. New Americans going to college need to check on the industry before investing any money in college institutions, checking out which industry will provide a job after graduation. Students need to check by doing research on industries and not by listening to college counselors with empty promises because all they need is your money.
Our government told us that the population is not educated enough to keep the country going and that we have fall behind other countries education system. We are not behind in education; we are in a very educated country with no industry to work for. We have countless college educated children with college degree who are not able to find jobs, this is the problem. I know children whose parents spent a huge amount of money sending them off to college and study fashion merchandising, business management, interior decorating. This could have been good careers if the economy was booming, on a bad economy, these careers are useless.
Although I have a job but with my masters on computer science I could have got a better job in a good economy but I am doing the same thing I was doing from the first time I started working in IT First level support. I look at it as this is better than nothing but if the economy was on the right track, I could have been on a CEO level. I submitted resume out almost every day but I never hear from any one because too many people are out of a job and companies that are hiring want people with 2 to 5 years experience. So if IT can’t help someone lend a job, then new students need to do research on specific industry before paying college institutions. Their parents need to do some research for them because it can be a lot of work.
New kids can get a full time job after high school and get the company to pay for their school, which was what I did to complete my master. It would be hard but they need to keep trying. Even if they decided to go to college after graduations of high school, they should do it on a local basis instead of leaving on campus because they have to pay both tuitions for college credits and living expenses which is why they bill is $150,000 to $200,000 dollars at the end, also is the amount to purchase a home.
They have the options to go to school online while living with their parents instead of taking on a huge student loan after graduation. Again careful consideration of researching the school for accreditation and industries are very important. Young students need to think and research carefully.
College education is not a right! The government should not be providing or subsidizing student loans if you want the cost of a college education to go down. As it currently stands, no university has the incentive to compete on the basis of price, however, if you take away all the government loans, universities will be forced to cut back on non-essential administrators, athletic programs paid for out of tuition money, and other things at the university that add no real value. Not only that, but most undergrad and grad programs are not even necessary to get a decent job and nothing says you have to get it right away. I worked my way through undergrad to have no loans and worked my way through a $40K a year grad program and came out with no student loans
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