What Does the Student Loan Legislation Mean for You?

The big debate in Congress over how to keep the student loan interest for subsidized Stafford Loans at a discounted amount of 3.4%, rather than doubling them, has finally come to a close. The increase would have raised the cost of repayment for the borrower by an average of $1,000 on the total loan. This affects around seven million undergraduates. Many people are rejoiced that congress has decided to halt the rate at 3.4% for one more year, but what do these changes mean?

Is this what you think of when you think of student loans?

Here are the facts about the new student loan bill:
  • The fixed interest only applies to new loans and goes into effect for everyone borrowing loans from July 1, 2012 to July 1, 2014.
  • The interest rate will only apply to loans borrowed between July 1st 2012 through July 1st 2014. In other words, this is just a short extension on the discounted rate (In 2007, Congress passed the College Cost Reduction and Access Act, which reduced the interest rates on subsidized Stafford Loans gradually over the next four academic years–from 6.8% eventually to 3.4%–with the provision that the rate would revert to 6.8% July 1, 2012). What this means is that this issue will have to be revisited again next year or the following year. The question becomes, how will this help and what will happen when the time comes to resolve this issue? At this point is very hard to predict what the long term future of subsidized student loans will be and the ultimate effect on borrowing students and their families.
  • A few changes have been made to the subsidized student loan program (where the government pays the interest while you are in school) with the extension of 3.4% interest rate. First, the 6 month grace period that students receive upon graduating and until they must begin repaying their loans is no longer interest free. Only a small percent of students qualify for subsidized loans because they are meant for people who are struggling financially. The government set this up so students who wish to go to college and need loans would be able to borrow the loans, interest free while still in school. In the past, the grace period for these loans has been interest free as well. Clearly there are concerns in this arena as well.
  • The government will start charging interest on subsidized Stafford loans no more than six years after undergraduates begin their studies. Prior to this, no interest was charged until after graduation, no matter how long that takes.
  • In addition, less people will qualify for subsidized Stafford Loans. This includes graduate students, who will no longer have the option to borrow subsidized federal loans to help pay for their masters degrees and beyond. Last year, 1.8 million graduate students borrowed subsidized Stafford Loans.
  • Something that many people do not realize is that this change does not affect most borrowers, really only a small amount of people. Most students who borrow Stafford Loans borrow unsubsidized loans, which, will continue to be fixed at 6.8%.
  • The Federal Pell Grant program provides need-based grants to low-income students with a maximum grant award of $5,550, which does not have to be paid back. The new change restricts the grant to 12 semesters instead of 18.
  • The extension of this bill is only estimated to save borrowers an average $1,000 each, while undergraduates now graduate with an average of over $25,000 in educational debt.

For more information about financial aid visit FinAid.org.

What do you think about Congress decision to sustain the current subsidized Stafford loan rates? Voice your opinion in the comment box below!

Leslie H. Tayne, Esq. founder of Tayne Law Group, P.C. (Formerly The Law Offices of Leslie H. Tayne, P.C.), assists consumers and individuals with the resolution of their unsecured debts. The firm’s flexible and well established policies and procedures have helped thousands of individuals lead a debt-free life. Law Offices of Leslie H. Tayne, P.C. has offices in Long Island, White Plains, Mount Kisco and New York City. For more information, call 1-631-470-8204 or visit www.attorney-newyork.com

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