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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.

By Karen Datko Jul 3, 2012 6:26PM

Image: Graduation cap (© Stephen Wisbauer/Getty Images)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:

Jul 3, 2012 7:31PM
It seems that every person(both parties) in both state and federal goverments keep saying how we need to help our kids get a better education as we are far behind just about every other country  but do nothing except cut their education funding and raise the cost of sending a kid to school.  And now they put the squeeze on the kids when they have to repay their loans.  This country will soon be the dumbest on the globe.
Jul 3, 2012 7:24PM
Sure don't want to get in trouoble with all of you, but our colleges have as much to do with this as anything else. And they are paying coaches how much??  Thats for starters.
Jul 4, 2012 10:43AM

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


The catch??


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

Jul 4, 2012 9:24AM
This is such a joke.  Why has not one national media outlet gone after the "academics" for fleecing this generation?  University / College tuition has dramatically outpaced inflation for nearly 30 years, but no one says a word about it.  People yell and howl at "big oil" and their price gouging, but not a peep about the academic society raping these kids with outrageous costs associated with their education.  Oh we hate and despise "Wallstreet", even "occupy Wallstreet" but allow Universities to get away with murderous tuition rates as tenured Professors and Union teachers teach less hours, less classes than ever before.  My sister teaches at a Northeastern University and says the tenured Professors are almost always the laziest teachers on campus as well as the least effective.  All they do is write to get published to hell with students.  This blows my mind.  Why is there zero backlash at the very people who put you into massive debt?  Never underestimate the stupidity of the American people.  A generation is being fleeced and their to damn dumb to even get angry about it. 

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.


Jul 4, 2012 1:46AM
An environment has been created where a college degree is the new high school diploma for many jobs. They know most people need it if they want to try to get anywhere in life, so they jack up the price to whatever fanciful number they want and let the students figure out a way to pay it. Thousands of dollars for a piece of paper that doesn't even guarantee a job most times. The quality of education hasn't changed. The textbook companies have students by the sack. Most math has been the same for centuries, and yet students are required to buy new versions of a math textbook that has only changed some pages around or added a few different pictures. Because students sell their books back, textbook companies make the bulk of their money off its initial release. 
Jul 3, 2012 8:24PM
I am a in my fourth year and will walk with two degrees from the University of California.  I work full time and max my units.  I do not get one cent from the government.  I hope to attend law school when I leave UC and will leave with a debt only to enter further into debt...the very least my government can do is set an interest rate that does not result in a profit to the financial industry that my taxes bailed out...where is the justice in that?
Jul 3, 2012 10:53PM
The colleges are getting greedy and there is no need to pay all those exorbitant fees and textbook prices. Major corporations are employing more use of telecommuting workers and the universities should be doing the same. One excellent professor could teach more students via the internet than what would be accommodated in a lecture hall so there will be less need for overstocked teaching staff. It is time to move from  Nineteenth Century teaching methods and on into the Twenty First Century.  Some business and high-tech schools are employing todays methods with much success. The advantage is that they use instructors who are actually professionals in their respective fields rather than full time theorists  that  comprise the ranks of archaic faculties utilized by obsolete college campuses and their programs. Think of the savings of not paying all the garbage fees extorted out of students at enrollment, no expensive parking permits or student body fees, no jockeying for the shortage of parking facilities or daily, if not twice daily, commutes.  And best of all, no need for overpriced, outdated text books.   
Jul 3, 2012 7:12PM
TJW2, dont show your ignorance by sarcastically thanking Obama. If you recall, Boehner got 98% of what he wanted last year in that debt ceiling crisis which includes doing away with those subsidized loans.
Jul 3, 2012 11:06PM

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.

Jul 4, 2012 2:33AM
Sallie Mae et al also OWN THE COLLECTIONS AGENCIES that come after you. I am not in default and have always paid my loans or defered or forbeared. The problem is that my wife has been laid off twice in three years for several months at a time and has been out several months for back surgery. Because of this we’ve BOTH had to put our loans on hold and are almost out of forbearances/deferrments. They won’t let me refinance at a lower rate with another willing company, via the free market, because Congress made it illegal. Because of my wifes issues we lost our house and filed for bankruptcy and even though we met the standards of the means test for bankruptcy, we couldn’t discharge our student loans because Congress made that illegal as well…no fresh start for us. I’m a combat vet and she was a teacher but our reps couldn’t care less about our welfare and ability to escape the bondage of debt and a modern day debtors prison. If we have another financial or health issue we are done for as I only have a little time left to defer or forbear…once a person defaults they tack on outrageous fees that will make impossible for me to resume normal payments…at that point I’ll just have to let them garnish my wages, which is what they want in the first place. It’s funny that another person can charge up Nascar tickets and trips to Bermuda (no collateral needed) and file bankruptcy on it but when it comes to student loans we are in debt for life. I’ve paid about half of the original balance of my student loans but owe more than when I started…we are creating a nation of endentured servants and no one cares.
Jul 3, 2012 8:51PM

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.  

Jul 4, 2012 7:43AM

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

Jul 3, 2012 9:48PM
I keep hearing the oooolllldddd line that college coaches are? bringing big bucks to the colleges.  That is sooooo trite. If the big bucks are soooo big why in hell are sooo many kids struggling to afford it?  Pay these prima donnas good money, but the line has not been drawn as to limits and there is part of the root of the problem.  $5M?? Insane.  Thats not helping grass roots kids.  Its part of the problem, a big part.
Jul 3, 2012 10:49PM
Upon the education of the people of this country, the fate of this country depends.
Benjamin Disraeli
Jul 4, 2012 1:13PM
College will continue to become less and less affordable. The root cause of the problem is the universities will continue to charge more and more to pay for the enormous salaries of the administrators, chancelors, coaches and the like. Their over inflated bureaucracy is only a step behind municipalities and our own federal govt.  The poor kids are almost willing to do and pay anything because society (and colleges) tell them they have to have that precious education. Some of these kids should pick up a hammer or learn a trade. I know more than one plumber and electrician making 80k a year.
Jul 4, 2012 3:47AM
I think college needs to become more affordable for people. Nowadays it is the equivalent of a high school diploma. It really bothers me that in this country you can file bankruptcy if you max out your credit cards for luxury items you don't need. At the same time if you can't pay back your loans because the economy is hurting you're screwed. My friend is getting less then 10 hours a week at her job, has submitted resumes and attended career fairs and she can't find a full-time job. She offered to make small payments based on what she could afford and the loan holders won't work with her. Where is the fairness?
Jul 4, 2012 2:53AM
give me a break ! our goverment gives out nearly free money to the big banks and corporations most at 1 % some even less.then they turn around ,ruin the economy but then charge our children three times that amount and have predatory attitude in the loans simular to the way the banks act.....we have it all wrong....and lets not forget the health care thing we are not getting goverment provided health care it is "goverment mandated" and it will cost far more than you think,it is a new tax and only helps big buisness and adds billions of dollars to manage and thousands of new goverment employees who by the way get free health care on our dime.......have you had enough yet? obama has two aids on staff that make 170.000 grand a year !! I ask you have you had enough yet ?
I graduated with my undergraduate degree 10 years ago and finished my graduate degree 4 years after that. I am still paying off these loans and don't see an end in sight. Aside from life changes (marriage, children, etc.), the loans haven't changed. If you are currently in a 4-year program and are taking out loans during this time, expect to be paying these off for a very long time. There are exceptions; be it if you find a well paying job, qualify for some of the relief programs etc. If you don't, as in my case, then the only options you have are either to continue applying for forbearance (which I have done twice and am doing again) or live on very little while paying off what you can. Having a college degree is almost a must these days, paying them off is another story.
Jul 10, 2012 12:03PM
USA is heading for some huge problems with the college loan issues.  I unfortunately am one of the many who will help bring down the problem on all.  Was not my plan nor my intention.  However, it is what it is now.  I am looking for a 2nd job but to no avail.  The real issue are; we need to have jobs these grads can work that will pay mortgage/rent, electric, gas, phone, food, and the loan...very few jobs can do that but then you add family to the mix and it is near impossible.  To all of people reading this who are just starting out in college and have no kids here is some advise from someone who has MESSED up:  work while going to school avoid loans if possible.  If not then take the SMALLEST amount needed to pay for school only.  Don't use it to pay living expenses that is what a job is for.  If you can't afford to do school fulltime take a few classes at a time.  Apply for very scholarship and grant out there.  Yes take the time to do this.  DON"T count on these silly loans.  They are a heavy burden that stays with you for a long time. Don't go more than $10,000 in debt for school.  It is just silly.  Make sure the field you are studying in has potential for jobs.  Really think about what you will earn after graduation.  Does that justify the debt?  Think about a shorter 2 year program.  Or find a place that does tution reimbursement (some employers do this).  Be smart...the parties, the dates, the clothes, the fancy cars don't mean diddly when you have children and cannot afford to pay all of your bills the least of it being your student loan. 
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