Student loan bill needs more work: Editorial

Congress OKs cheaper student loans

It just looks good today, but a few years from now it may even be higher than the 6.8 percent that these rates are replacing. A cap of 8.25 percent for undergraduate loans and 9.5 percent for graduate student loans does not impress Lauren Asher, president of The Institute for College Access & Success. Asher noted the agreement directs the Government Accountability Office to complete a study of the student loan programs costs. The deal does not incorporate the governments actual costs of operating the loan program. Whats the governments profit margin, and is it coming at the expense of students and families? Graduates are already saddled with debt and a lousy job market.

Student-Loan Forgiveness Programs Don’t Always Pay Off

These rates will apply to loans taken out since July 1 and will lock in for the lifetime of the loan. The plan calls for limits on how high the rates can go: 8.25 percent for undergraduates, 9.5 percent for graduate students and 10.5 percent for PLUS loans. If the economy improves, rates on future loans are expected to surpass the current rates. Democrats have said they hope to again take action before that happens. This rate change has been in the works for months, prompted by the July 1 expiration of a reduced interest rate on one type of loan taken out by mostly low- and middle-income undergraduates. In May, the House approved a plan that would tie interest rates to the market but allow those rates to change over the lifetime of the loan.

Student loan deal passes Senate

They noted that the Senate version wasn’t much different from their own student loan bill, which linked rates to the bond markets. “My colleagues and I have been fighting for months for a long-term market-based solution that will serve students and taxpayers, and the legislation before us today will do just that,” said Minnesota Republican John Kline, who runs the House education panel. Related: Student loan horror stories The new rule doesn’t apply to loans that students get from private lenders. It only affects Stafford loans, which are made by the U.S. government to help finance a college education.

However almost half of federal loans that have been modified have subsequently returned to default and we believe similar results could be expected for private loans. Of the often-quoted $1 trillion pool of outstanding student loans, only 15%, are private student loans that do not carry a U.S. government guarantee, as noted in our recent special report. Overall we view the credit prospects for private student loan ABS positively based on improvements in the economy. Over this past week the Federal Deposit Insurance Corp., the Federal Reserve and the Office of the Comptroller of the Currency urged private student lenders to create more flexible repayment terms, reduce interest rates and accept lower payments. Their recommendations were consistent with those included in the Consumer Financial Protection Bureau’s “Student Loan Affordability” report published on May 8.

Fitch: Private Student Loan Proposals Could Help and Hinder ABS

If you complete your service, the government will pay some or all of the interest, but youll pay iton top of your loansif you dont. The Peace Corps forgives 15% of Perkins loans for each of your first two years of service and 20% for each of the next two, capping the forgiven amount at 70% of your combined loans. Thats helpful, but only if youre willing to commit to several years of hard work for minimal payand only if you have Perkins loans to begin with. AmeriCorps and Teach for America offer more flexibility. Volunteers are eligible for the Segal AmeriCorps Education award, tied to the Pell amount ($5,550 in 2012).


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