Will student loan reforms cut borrowers' costs?
Congress considers various proposals to pare lending rates, subsidies
By John W. Schoen
When the fall semester starts and Congress returns to work next month, students and their families may get a break on the cost of borrowing to pay tuition. But the details of how those breaks will be apportioned are very much up for grabs. And it remains to be seen just how much money these reforms will save student borrowers and their families.
Congress has been hashing out student loan reforms for months, following revelations of conflicts of interest and other student lending abuses by New York Attorney General Andrew Cuomo. That investigation is ongoing, but settlements with several dozen schools and lenders have yielded refunds to student borrowers and stricter guidelines on business dealings between lenders and school financial aid offices.
A recent report by the Government Accountability Office criticized the Dept. of Education for not being vigilant enough with policing conflicts of interest among schools and student lenders and called for increased oversight.
Both the House and Senate have weighed in on the issue, proposing regulations barring lenders from paying financial incentives to schools and requiring fuller disclosure of joint marketing efforts.
With the Cuomo’s office continuing its investigation, proposed tighter federal oversight of student lending practices have drawn little opposition — in part because Congress wants to head off state-by-state regulation of the industry.
"The danger is that you’ll have a disparate set of rules and no centralized way to monitor them," said John Walda, president of the National Association of College and University Business Officers.
Congress is also proposing significant changes in the way the $85 billion market for student loans is subsidized and guaranteed. The House and Senate have enacted separate bills with some common ground, but it remains to be seen just how the final law will impact the cost of a student loan.
Both bills would ease the burden on student by placing limits monthly payments based on income; once out of school, graduates would have to pay no more than 15 percent of their income each month. All debt would be canceled after 25 years. And more loans would be “forgiven” for graduates who take public-service jobs like teachers, nurses, police and firefighters.
The bills also both call for cutbacks in subsidies for lenders that participate in government-backed loan programs. By shaving roughly a half-percentage point from those subsidies, Congress is hoping save as much as $19 billion a year. The government would also require lenders to cover more of the losses from defaulted loans — the House and Senate bills differ on just how much more.
At issue is how and where those savings are diverted. The House bill would slash the rate on need-based loans in half — from the current 6.8 percent to 3.4 percent — and provide additional money for so-called Pell grants, a program that currently pays up to $4,010 a year in direct aid to low-income students. The Senate bill doesn’t include a rate cut, but is more generous with increases in Pell grants.
While the details are yet to be worked out, cuts in loan subsidies will squeeze lenders profits and could make it hard from smaller lenders to compete, according to Sameer Gokhale, an analyst who follow the student loan industry at Keefe, Bruyette & Woods.
“Most likely is it puts a lot of lenders out of business,” he said.
That could send more students back to the government’s direct lending program, which lost market share to private lenders in the past decade as the volume of student lending has grown. Supporters of expanded direct lending say it would save the government money. Supporters of subsidized private lending say the competition has improved the level of customer service available to borrowers.
For those lenders who remain in business, the profit squeeze also force them to cut back on other incentives, according to Gokhale.
Those incentives include interest rate discounts to students who agree to have their monthly payments debited directly from a bank account. Some lenders also waive the 3 percent loan origination fee or "forgive" the last few monthly payments for students who repay their loan on time.
"A significant chunk of those subsidies used to go back to the student in the form of these borrower benefits," he said. "Because of the nature of these cuts, and because they’re so deep, it almost seems inevitable that borrower benefits would have to be reduced pretty dramatically."
No matter what terms apply under new regulations, many students will still need to borrow from private lenders outside the federally-subsidized programs, which limit how much each student can borrow. With tuition costs continuing to rise faster than those lending caps, many students and families have to make up the difference with an unsubsidized private loan — where interest rates are set by each lender.
That’s why students should borrow as much as they can under federal programs before turning to private lenders, according to Mark Kantrowitz, publisher of FinAid.org, a Web site devoted to college financial aid.
“You should focus on federal instead of private loans because federal loans are cheaper,” he said. “And shop around for federal rates; you can save hundreds, if not thousands of dollars.”
10/04/2007
Explosion in high-priced loans could haunt the U.S. economy for years
The near doubling in the cost of a college degree the past decade has produced an explosion in high-priced student loans that could haunt the U.S. economy for years.
While scholarship, grant money and government-backed student loans — whose interest rates are capped — have taken up some of the slack, many families and individual students have turned to private loans, which carry fees and interest rates that are often variable and up to 20 percent.
Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time.
Kristin Cole, 30, who graduated from Michigan State University’s law school and lives in Grand Rapids, Mich., owes $150,000 in private and government-backed student loans. Her monthly payment of $660, which consumes a quarter of her take-home pay, is scheduled to jump to $800 in a year or so, confronting her with stark financial choices.
“I could never buy a house. I can’t travel; I can’t do anything,” she said. “I feel like a prisoner.”
A legal aid worker, Cole said she may need to get a job at a law firm, “doing something that I’m not real dedicated to, just for the sake of being able to live.”
Parents are still the primary source of funds for many students, but the dynamics were radically altered in recent years as tuition costs soared and sources of readily available and more costly private financing made higher education seemingly available to anyone willing to sign a loan application.
Students with no credit history and no relatives to co-sign loans (or co-signing parents with tarnished credit) were willing to bet that high-priced loans were a trade-off for a shot at the American dream. But high-paying jobs are proving elusive for many graduates.
“This is literally a new form of indenture ... something that every American parent should be scared of,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.
More than $17 billion in private student loans were issued last year, up from $4 billion a year in 2001. Outstanding student borrowing jumped from $38 billion in 1995 to $85 billion last year, according to experts and lawmakers.
Rocketing tuition fees made borrowing that much more appealing. Consumer prices on average rose less than 29 percent over the past 10 years while tuition, fees, and room and board at four-year public colleges and universities soared 79 percent to $12,796 a year and 65 percent to $30,367 a year at private institutions, according to the College Board.
Scholarship and grant money have increased, yet for almost 15 years, the maximum available per person in government-guaranteed student loans, which by law can’t charge rates above 6.8 percent, has remained at $23,000 total for four years. That’s less than half the average four-year tuition, room and board of $51,000 at public colleges and $121,000 at private institutions.
Sallie Mae, formally known as SLM Corp., has been on the winning side of the loan bonanza. Its portfolio of 10 million customers includes $25 billion in private and $128 billion in government-backed education loans. However, private-equity investors who had offered $25 billion to buy the company backed out last week, citing credit market weakness and a new law cutting billions of dollars in subsidies to student lenders.
Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Wachovia Corp. are also big players in the private student loan business. And there has been an explosion in specialized student loan lenders, such as EduCap, Nelnet Inc., NextStudent Inc., Student Loan Corp., College Loan Corp., CIT Group Inc. and Education Finance Partners Inc.
While scholarship, grant money and government-backed student loans — whose interest rates are capped — have taken up some of the slack, many families and individual students have turned to private loans, which carry fees and interest rates that are often variable and up to 20 percent.
Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time.
Kristin Cole, 30, who graduated from Michigan State University’s law school and lives in Grand Rapids, Mich., owes $150,000 in private and government-backed student loans. Her monthly payment of $660, which consumes a quarter of her take-home pay, is scheduled to jump to $800 in a year or so, confronting her with stark financial choices.
“I could never buy a house. I can’t travel; I can’t do anything,” she said. “I feel like a prisoner.”
A legal aid worker, Cole said she may need to get a job at a law firm, “doing something that I’m not real dedicated to, just for the sake of being able to live.”
Parents are still the primary source of funds for many students, but the dynamics were radically altered in recent years as tuition costs soared and sources of readily available and more costly private financing made higher education seemingly available to anyone willing to sign a loan application.
Students with no credit history and no relatives to co-sign loans (or co-signing parents with tarnished credit) were willing to bet that high-priced loans were a trade-off for a shot at the American dream. But high-paying jobs are proving elusive for many graduates.
“This is literally a new form of indenture ... something that every American parent should be scared of,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.
More than $17 billion in private student loans were issued last year, up from $4 billion a year in 2001. Outstanding student borrowing jumped from $38 billion in 1995 to $85 billion last year, according to experts and lawmakers.
Rocketing tuition fees made borrowing that much more appealing. Consumer prices on average rose less than 29 percent over the past 10 years while tuition, fees, and room and board at four-year public colleges and universities soared 79 percent to $12,796 a year and 65 percent to $30,367 a year at private institutions, according to the College Board.
Scholarship and grant money have increased, yet for almost 15 years, the maximum available per person in government-guaranteed student loans, which by law can’t charge rates above 6.8 percent, has remained at $23,000 total for four years. That’s less than half the average four-year tuition, room and board of $51,000 at public colleges and $121,000 at private institutions.
Sallie Mae, formally known as SLM Corp., has been on the winning side of the loan bonanza. Its portfolio of 10 million customers includes $25 billion in private and $128 billion in government-backed education loans. However, private-equity investors who had offered $25 billion to buy the company backed out last week, citing credit market weakness and a new law cutting billions of dollars in subsidies to student lenders.
Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Wachovia Corp. are also big players in the private student loan business. And there has been an explosion in specialized student loan lenders, such as EduCap, Nelnet Inc., NextStudent Inc., Student Loan Corp., College Loan Corp., CIT Group Inc. and Education Finance Partners Inc.
Student Loan Consolidation from premier-student-loan.com
After graduation, students are often faced with the financial burden on paying off their student loans. The inability to keep up with student loan payments can seriously harm one’s credit and that’s where student loan consolidation comes to the rescue!
PremierStudentLoan.com is the leading student loan site on the web. Their extensive network for students, graduate students, and parents provides information, articles, and resources to help you make the best decision about your college and financial future.
PremierStudentLoan.com provides you with information in order to access a variety of products including private and federal student loan consolidation programs, scholarship and grants. They also offers free quotes helping you find the best student loan rates and lenders in your area.
Have you determined what college or university you are going to attend? Not sure which majors your top-rated schools have? Need to know the master and doctorate degrees available? Don’t know what schools have online colleges? Find out using their comprehensive School Directory. It allows you to explore details on your dream schools to find your best match. From business schools to private schools and online colleges, they can help.
Private student loans, also known as alternative loans, are typically backed by banks and non-profit organizations instead of the federal government. Private student loans can help with your additional education expenses between federal loans, scholarships, and federal aid. If you are an incoming freshman or a college senior, you are going to run into unexpected expenses such as books, computers and laptops, and private tutors. Private loan is just the answer.
PremierStudentLoan.com is the leading student loan site on the web. Their extensive network for students, graduate students, and parents provides information, articles, and resources to help you make the best decision about your college and financial future.
PremierStudentLoan.com provides you with information in order to access a variety of products including private and federal student loan consolidation programs, scholarship and grants. They also offers free quotes helping you find the best student loan rates and lenders in your area.
Have you determined what college or university you are going to attend? Not sure which majors your top-rated schools have? Need to know the master and doctorate degrees available? Don’t know what schools have online colleges? Find out using their comprehensive School Directory. It allows you to explore details on your dream schools to find your best match. From business schools to private schools and online colleges, they can help.
Private student loans, also known as alternative loans, are typically backed by banks and non-profit organizations instead of the federal government. Private student loans can help with your additional education expenses between federal loans, scholarships, and federal aid. If you are an incoming freshman or a college senior, you are going to run into unexpected expenses such as books, computers and laptops, and private tutors. Private loan is just the answer.
Where To Look for Help of Student Loan Consolidation
By: Ian Wilkie
As part of any research when looking at your student loan consolidation information alternatives you need to examine where you are able to research information, despite the high education costs and the cost of borrowing to meet these, students and parents have some advantages today that did not exist even ten years ago, the Internet has changed in many ways for ever the way financial aid is researched and granted.
Today it is a simple task to be able to quickly access and review an enormous amount of information, qualifying criteria, rates, loan limits and much more is easily available, however that also suggests one of the difficulties of easy facts, the possibility of too much data, the old saying in the information technology industry sums it up best, it is like a person drinking from a fire hose, having so much information flooding into their head, especially given the variety and complexity of loan schemes today, this can make examining the information all that much harder, to overcome this difficulty, one element of the old-fashioned methods is still very useful, that is looking for personal advice and guidance.
For many students still in high school, planning a college education and looking at ways to pay for it starts with their school counselor these counselors are there to assist students analyze through the bewildering array of choices, and to point out many of the potential rewards or pitfalls of different options, but alas the quality of that instruction can vary quite considerably.
Professional loan counselors as well as being up on the latest information are required to attend regular courses each year to keep up-to-date and maintain his or her qualified standing, however the downside is that they commonly charge for their services, a few minutes of advice on the telephone or in person is usually free, however any detailed advice or program is always at a cost, this is understandable since that is how they make a living.
The online variants of qualified loan counselors additionally have similar good points and bad points, since there is so much variety on the web today, finding a trustworthy source can be hard, the advantage of a personal strategy, which enables judging their reliability through hearing their voice or viewing their face is missing, nonetheless with social networks and blogs growing in recent years that drawback has largely been outweighed.
It is possible today to view hundreds of reliable recommendations from people you interact with consistently online, when reading comments posted by new forum members it is often hard to judge the potential worth of his or her opinion, nonetheless over a period of time, you can recognize who is providing objective and meaningful information and before long you are able to locate professionals to get more in-depth guidance.
Be certain to allocate at least one year to examine the available options, two years or more would be better, saving for and planning your education should start much earlier, nevertheless getting information that is likely to be effective requires not putting too much weight on situations that will exist a number years from now, interest rates, qualifying criteria and available programs do change over time and who knows, the Internet innovators might come up with something even better in the future, it is essential to keep this information at hand when looking at any student loan consolidation information.
Article Source: ABC Article Directory
Ian Wilkie is a published expert author of many Student Loan Consolidation Information articles and owner of - My Student Loan Consolidation Information your one-stop online resource for Student Loan Consolidation Center.
As part of any research when looking at your student loan consolidation information alternatives you need to examine where you are able to research information, despite the high education costs and the cost of borrowing to meet these, students and parents have some advantages today that did not exist even ten years ago, the Internet has changed in many ways for ever the way financial aid is researched and granted.
Today it is a simple task to be able to quickly access and review an enormous amount of information, qualifying criteria, rates, loan limits and much more is easily available, however that also suggests one of the difficulties of easy facts, the possibility of too much data, the old saying in the information technology industry sums it up best, it is like a person drinking from a fire hose, having so much information flooding into their head, especially given the variety and complexity of loan schemes today, this can make examining the information all that much harder, to overcome this difficulty, one element of the old-fashioned methods is still very useful, that is looking for personal advice and guidance.
For many students still in high school, planning a college education and looking at ways to pay for it starts with their school counselor these counselors are there to assist students analyze through the bewildering array of choices, and to point out many of the potential rewards or pitfalls of different options, but alas the quality of that instruction can vary quite considerably.
Professional loan counselors as well as being up on the latest information are required to attend regular courses each year to keep up-to-date and maintain his or her qualified standing, however the downside is that they commonly charge for their services, a few minutes of advice on the telephone or in person is usually free, however any detailed advice or program is always at a cost, this is understandable since that is how they make a living.
The online variants of qualified loan counselors additionally have similar good points and bad points, since there is so much variety on the web today, finding a trustworthy source can be hard, the advantage of a personal strategy, which enables judging their reliability through hearing their voice or viewing their face is missing, nonetheless with social networks and blogs growing in recent years that drawback has largely been outweighed.
It is possible today to view hundreds of reliable recommendations from people you interact with consistently online, when reading comments posted by new forum members it is often hard to judge the potential worth of his or her opinion, nonetheless over a period of time, you can recognize who is providing objective and meaningful information and before long you are able to locate professionals to get more in-depth guidance.
Be certain to allocate at least one year to examine the available options, two years or more would be better, saving for and planning your education should start much earlier, nevertheless getting information that is likely to be effective requires not putting too much weight on situations that will exist a number years from now, interest rates, qualifying criteria and available programs do change over time and who knows, the Internet innovators might come up with something even better in the future, it is essential to keep this information at hand when looking at any student loan consolidation information.
Article Source: ABC Article Directory
Ian Wilkie is a published expert author of many Student Loan Consolidation Information articles and owner of - My Student Loan Consolidation Information your one-stop online resource for Student Loan Consolidation Center.
Why Should You Co-sign a Student Loan?
At the time of researching your student loan consolidation info alternatives you should look at co-signer and no co-signer student loans, as often when the original borrower has poor credit, they ask a secondary party to guarantee to pay for the loan and they are called a co-signer. Many students do not start out with credit accounts and they have never even had a car loan. This causes them to have a very short credit history. Many times our students have made poor decisions in the past with their credit.
They often end up with a balance on their credit card that they can’t repay with monthly payments. Having a poor credit score, or the lack of one will put the hopeful applicant into what is known as a high risk credit category. Loan officers are trained to look for that information in your credit history, even the ones with a federal student aid plan. Loan applications can be denied, or accepted, but with a high interest rate to offset the probability that your loan will go into default.
Co-signers are needed in the event of bad credit or simply having no credit score at all. Generally the co-signer will be the parents of the borrower or other close relative. Bankers will evaluate whether or not to loan you money based on your parent’s credit history, FICO score and debt to income amount. Now, it is up to the parents credit for deciding what the interest percentages will be. Generally those with a poor credit score will have higher interest rates than ones with superior credit ratings. A popular student loan plan shows that with an interest amount of 4% it will cost $5,489 in interest and at 6% it rises to $10,647. A 2% difference doesn’t sound like much, but given contemporary borrowing levels and compounding, such a scenario is not unrealistic.
Students and parents are often financing up to $100,000 for their education. Even if you make the interest payments while the student is in school, so that it doesn’t add to your balance owed, the payment would be $567 at a 6.8% interest rate every month. The interest amounts for the entire year would be about $6,600. Lowering that interest rate to 5% (the official amount for a need-based Perkins loans) reduces those numbers to $417 and $4,820. Remember the example is assuming payments will begin immediately while the student is in school.
If the interest is not deferred or subsidized, waiting to start the payments until you are out of school will cause these numbers to be much higher. Over the length of the loan, a co-signer will help to lower your overall amounts paid in interest by getting a better interest rate than you would have gotten on your own. Many websites have a great calculator for figuring sample situations that might apply to you. The information detail in this article will form an important part of any student consolidation loan information.
Keywords: Student Loan Consolidation Info, Student Consolidation Loan Information, Student Loan Consolidation Information
Catergory: Finance Loans Business Education
They often end up with a balance on their credit card that they can’t repay with monthly payments. Having a poor credit score, or the lack of one will put the hopeful applicant into what is known as a high risk credit category. Loan officers are trained to look for that information in your credit history, even the ones with a federal student aid plan. Loan applications can be denied, or accepted, but with a high interest rate to offset the probability that your loan will go into default.
Co-signers are needed in the event of bad credit or simply having no credit score at all. Generally the co-signer will be the parents of the borrower or other close relative. Bankers will evaluate whether or not to loan you money based on your parent’s credit history, FICO score and debt to income amount. Now, it is up to the parents credit for deciding what the interest percentages will be. Generally those with a poor credit score will have higher interest rates than ones with superior credit ratings. A popular student loan plan shows that with an interest amount of 4% it will cost $5,489 in interest and at 6% it rises to $10,647. A 2% difference doesn’t sound like much, but given contemporary borrowing levels and compounding, such a scenario is not unrealistic.
Students and parents are often financing up to $100,000 for their education. Even if you make the interest payments while the student is in school, so that it doesn’t add to your balance owed, the payment would be $567 at a 6.8% interest rate every month. The interest amounts for the entire year would be about $6,600. Lowering that interest rate to 5% (the official amount for a need-based Perkins loans) reduces those numbers to $417 and $4,820. Remember the example is assuming payments will begin immediately while the student is in school.
If the interest is not deferred or subsidized, waiting to start the payments until you are out of school will cause these numbers to be much higher. Over the length of the loan, a co-signer will help to lower your overall amounts paid in interest by getting a better interest rate than you would have gotten on your own. Many websites have a great calculator for figuring sample situations that might apply to you. The information detail in this article will form an important part of any student consolidation loan information.
Keywords: Student Loan Consolidation Info, Student Consolidation Loan Information, Student Loan Consolidation Information
Catergory: Finance Loans Business Education
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