The College Student Loan “Crossfire”
Students looking to take out new federal loans to support their college educations were expecting their interest rates to double – as the 6.8% interest rate kicked in on July 1.
That would have meant a 1/6th increase on monthly payments once a student graduated and the loan entered repayment.
Students can now breath a sigh of relief, though, as the Senate last week approved a bill that allows undergraduate students to borrow at 3.9% for this school year.
How it will all play out in the long term, though, is anyone’s guess, which is why it’s more important than ever to avoid becoming a casualty of the “student loan crossfire.”
Keep reading to learn more, and how some colleges are taking matters into their own hands to keep student debt down…
The Student Loan Crossfire
The student loan bill enjoys bipartisan support and is expected to be passed by the House this week, and President Obama has indicated he will sign the measure into law.
Of particular note in this bill is the fact that rates no longer will be set each year by Congress.
Rather, students borrowing for college will see their loans tied to the U.S. Treasury 10-year borrowing rate (plus an added percentage, which is based on the type of loan.)
In other words, interest rates will be subject to financial market forces – and not determined any longer by Congress.
While that means student debt stays relatively cheap for the moment, the cost of borrowing for college could rise dramatically in the years ahead.
(Senate and House legislation versions include loan interest rate caps at 8.25% and 8.50%, respectively, for undergraduates.)
Even with the Senate/House agreement close to becoming law, college graduates with student loan debt are already struggling to afford what used to be basic milestones for young adults, like getting married or buying a house.
This has long-term implications not only for the individuals, but future generations and our economy as well.
Massive student loans have created a vicious cycle in which recent graduate sometimes can’t afford to do things like start families, buy homes, or even afford college for their own children.
In turn, that hurts the economy, which is a major cause of increases in college costs and, likewise, student loan debt.
But according to USA Today, the battle over student loans is not a one-sided fight. Colleges like UNC Chapel Hill and University of Michigan are fighting back to help keep student debt down.
UNC has fought to keep their costs down by using increases in in-state tuition to finance essential need-based grants for both in-state and out-of-state undergrads and graduate students.
They also use their extremely marketable name and logo to help their students. All of the $4.5-$5 million of profit brought in each year from student stores and trademarked merchandise goes directly to fund grants and scholarships.
Similarly, Michigan has restructured their school budget in order to lower in-state tuition hikes and increase the amount of money put towards financial aid. By increasing financial aid revenues, UM has been able to go five years without increasing the net cost for students that demonstrate need.
Even though the news on the student loan front seems rosier, it is still absolutely crucial for families to prepare ahead of time and develop a plan for keeping your student loans low.
Financial planning is the most important key to protecting yourself from the student loan crossfire. Educate yourself on the process, make your plan, and keep your loans as low as you can.
To your college funding success,
Co-Founder, College Planning Network LLC
Publisher, CollegeMadeSimple.com – The free educational resource of College Planning Network