Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, August 23, 1993 TAG: 9308200380
SECTION: MONEY PAGE: A-8 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
Starting with loans made after next July 1, for the 1994-95 school year, you'll pay a fee of no more than 4 percent when you take the loan, compared with up to 8 percent today.
This new, lower fee applies to all guaranteed Stafford student loans (the government's main loan program) as well as to the lesser programs, Supplemental Loans to Students and Parent Loans to Undergraduate Students.
Your interest-rate risk also will decline. The maximum rate that student borrowers might have to pay at some point in the future has been reduced, for the second time in as many years.
Students newly seeking loans should first apply at the financial aid office of the school they'll attend. The school may handle your loan itself or refer you to a private lender. Here are the changes; most start July 1:
STAFFORD LOANS: These loans come in two varieties: (1) Financially needy students get subsidized loans. The interest on these loans is paid by the federal government, as long as the students are in school. When they leave school, the students make the payments themselves; (2) Students not judged financially needy get unsubsidized loans, meaning that they have to pay all the loan interest personally. There are limits on how much you can borrow, depending on how far along you are in your education. A freshman, for example, can borrow up to $2,625: sophomores $3,500.
Formerly, the interest rate on Stafford loans was fixed. Since 1992, however, the rate on new loans has been variable, changing each July. Right now, you're paying the 91-day Treasury bill rate plus 3.1 percentage points. On this year's loans, that adds up to 6.22 percent.
The new bill makes a change. Starting in July 1995, the rate on new loans drops to 2.5 percentage points over Treasury-bill rates as long as the student is in school. That's a break for the students and parents who pay the loan interest themselves. This rate drop will apply to other federally backed education loans as well.
To keep your interest payment from rising too high, Congress has imposed a cap. Starting in July, your maximum loan rate can't run any higher than 8.5 percent, compared with 9 percent now.
SUPPLEMENTAL LOANS FOR STUDENTS: This program is used by students who need more money than they can get from Stafford loans. You qualify for help regardless of the size of your income. The heaviest borrowers are graduate students and independent undergraduates, the latter generally defined as students over 24. The new bill merges SLS with unsubsidized Staffords, so they'll become a single program. The 11 percent cap on interest for SLS loans will drop to 8.5 percent. This program, too, has borrowing limits. Freshmen and sophomores, for example, can get a maximum of $4,000 annually. Larger loans are available to juniors, seniors and graduate students.
PARENT LOANS TO UNDERGRADUATE STUDENTS (PLUS): The interest-rate cap will drop to 9 percent from 10 percent. Instead of being disbursed all at once, as is currently done, you'll get your PLUS loan in two parts - a half payment each semester. That avoids dispensing a full year's money for kids who quit school shortly after the school year begins.
DIRECT LOANS: At present, most students and parents borrow from private lenders, who coordinate with the school and a guaranty agency. The feds subsidize the lenders and insure against default. Starting next year, however, the government will begin cutting out the private lenders in hopes of saving $4.3 billion in subsidies and other costs. Schools will make the loans directly, using federal funds.
by CNB