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College Aid Bill Heads to White House
(Continued from UNH Today home page.)
HOW RATE CUTS WILL BE APPLIED
For loans disbursed July 1 through July 1 of the following year:
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2008 to 2009
2009 to 2010
2010 to 2011
2011 to 2012
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6.0%
5.6%
4.5%
3.4%
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Source: Project on Student Debt
PELL GRANT AMOUNTS
Maximum Pell grants through 2012:
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2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
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$4,800
$4,800
$5,000
$5,000
$5,400
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The approximate cost of a four-year education is taped onto the mortar board of a graduate of Barnard College during May 15 commencement ceremonies in New York.
Photo by Henny Ray Abrams, AP
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White House gets $20B college aid bill
By Sandra Block, USA TODAY
Democratic leaders formally signed a $20 billion college aid bill Tuesday that will boost federal grants for low-income students and lower interest rates for student loans.
Supporters say the bill, which President Bush is expected to sign within 10 days, is the largest investment in college education since the 1944 GI bill provided tuition aid to millions of World War II vets.
"This is obviously a very big day for students and their families," said Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee.
The bill will increase Pell grants, the largest source of federal aid to low-income students, from $4,310 to $5,400 by 2012 (see chart). It will also cancel unpaid loan balances for borrowers who work at least 10 years in public service and who make payments for those 10 years. In addition, it will let all federal student loan borrowers make payments based on their income. To pay for the new programs, the bill will cut federal subsidies to private lenders that offer federally guaranteed loans.
Congress approved the bill over the objections of lenders, which warned that the federal subsidy cuts would raise the costs of student loans.
Some Republican lawmakers have also criticized the loan-forgiveness provision, arguing that it created a new government entitlement program. Sen. Judd Gregg of New Hampshire, the top Republican on the Senate Budget Committee, says the bill "puts a stake through the heart of the budget process."
Nor does the bill address the rising cost of college, which has led to record amounts of student debt. In the past five years, average tuition at a public university has soared 35%, after adjustment for inflation.
Miller said members of his committee plan to look at steps colleges should take to restrain costs. "It's a bipartisan interest in Congress, so I think that conversation is about to begin," he said.
How the bill will affect students and families who borrow money for college:
Lower interest rates
The law will gradually reduce rates on some undergraduate Stafford loans. But the cuts won't kick in until next year. If you have an outstanding Stafford loan, you won't benefit from a rate cut, says Robert Shireman, director of the Project on Student Debt. The current rate for Stafford loans taken out after July 1, 2006 is 6.8%.
The rate cuts will be limited to subsidized Stafford loans, available only to borrowers with financial need. With such subsidized loans, the government pays the interest while you're in school. About two-thirds of subsidized Stafford loans go to families with adjusted gross income of under $50,000.
The law will reduce rates for the subsidized Stafford loans to 3.4% by 2011 (see box). But barring congressional action, those rates will jump back to 6.8% on July 1, 2012.
The lower rates will apply to new loans taken out after the effective date. If, for example, you take out a subsidized Stafford loan on July 1, 2008, your rate will stay 6% for the life of the loan. Your rate won't fall to 5.6% on July 1, 2009; that rate will apply only to loans issued after that date.
Income-based repayment
Borrowers with Stafford loans will never have to spend more than 15% of their discretionary income, which is tied to the federal poverty level, on their loan repayments.
The amount of discretionary income for individual borrowers will vary, depending on family size. But most borrowers who sign up for the program will end up spending less than 10% of their total income on their student loans, according to the Project on Student Debt.
Under current law, borrowers can enroll in a program that caps payments at 20% of discretionary income. Few borrowers, though, have taken advantage of that program, says Philip Schrag, a law professor at Georgetown University Law Center. The new program "reduces payments to a much more manageable fraction of disposable income," he says.
If the capped payment doesn't cover interest on the loan, and the loan is a subsidized Stafford, the government will pay the interest for the first three years. After that, unpaid interest will be added to the loan balance.
For unsubsidized Stafford loans, unpaid interest will be added to the balance from the beginning. But after 25 years, any balance left on the loan will be canceled.
This provision takes effect on July 1, 2009. But it won't be limited to loans issued after that date. Borrowers with outstanding loans will also be eligible for the income-based repayment program.
Lawmakers who backed this provision recognized that some people never earn enough money to repay their investment in a college education, says Luke Swarthout, associate with the U.S. Public Interest Research Group's Higher Education Project. "We ought to have a system that is not so overly punitive that we discourage people from making that investment or taking that risk."
Loan forgiveness for public service workers
Borrowers who spend at least 10 years working in certain public service professions, such as police officers, teachers, firefighters and members of the military, will be eligible to have the balance of their student loans forgiven.
If you're a public service employee, or are considering a career in public service, here's what you need to know about the loan forgiveness program:
• Only loan payments made after Oct. 1 count toward the 10-year period. If you're already working in a public service job, you won't receive credit for payments you've already made on your loans.
• You must make income-based payments to the federal direct loan program.
The federal direct loan program is one of two Stafford loan programs. The other is the Federal Family Education Loan Program, in which loans are provided by private lenders and guaranteed by the government.
Only about a quarter of colleges and universities take part in the direct lending program.
But public service workers can qualify for the loan forgiveness program by consolidating their loans in the direct loan program, says Mark Kantrowitz, publisher of FinAid.org, a financial aid site.
Schrag, the law professor, says the provision will be particularly helpful to law school graduates who want to pursue a career in public service.
Those graduates have some of the highest debt-to-income ratios of all borrowers, making it hard for them to work in government or public service, Schrag says.
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