Does Uncle Sam want YOU to consolidate?
January 17, 2006
As many Americans this December debated whether or not to say, “Merry Christmas,” versus, “Happy Holidays,” the U.S. Congress spent the season debating a deficit-reduction bill.
The bill will reduce the number of student loans available and also will reduce the amount that remaining loans are offered for.
The main purpose of the bill was to reduce the Defense Department budget, but it also would cut $12.7 billion from the education department budget.
Many of the changes were made because of the Higher Education Act, which provides financial assistance to students in postsecondary and higher education.
The House passed the bill only a few days before Christmas, but Democrats halted its passage in the Senate. An edited version is on its way back to the House for approval. It is expected to pass Congress and be signed into law by President Bush in early February.
The most significant changes in the education budget would alter reimbursement policies and percentages between private lenders and the government, as well as impose harsher penalties for borrowers who default on their loans, but a few provisions would affect current students.
No more early consolidation
“Interest rates have gone a lot lower in the past few years,” said Inali Saghu, NIU financial aid counselor.
Interest rates used to vary from year to year, but legislation passed in 2002 and effective in July of 2006 will change interest rates for new loans from variable to fixed.
The interest rate on Stafford Loans will be set at 6.8 percent, and on PLUS Loans at 7.9 percent, both higher than the unexpectedly low rates of the last few years.
In addition, the bill would now eliminate the option for students still in school to consolidate their loans.
Saghu said consolidation, a service provided by many lenders, takes all of a student’s loans, calculates an average rate and locks it in for the duration of repayment.
At this time, the option is available for students who are still in school, although doing so cancels out the automatic deferral of payments until after graduation.
Saghu said the bill may be altered again before it passes, so nothing is yet set in stone. Even if it does pass, the Department of Education may employ additional executive policies that change the outcome.
“If [the bill] does go through, it would be a really good idea to consolidate your loans before July 1,” Saghu said.
More money for Pell Grant recipients
Another change in the student loan program would alter the borrowing limits and cutoff standards regarding Pell Grants.
About $3.75 billion from total “savings” from changes in the government’s relationship with lenders are being reinvested in a new Pell Grant program.
This provides more funds for lower income students, an increase of the income cutoffs for Pell Grant eligibility for all students and extra financial aid incentives specifically targeting math and science majors.
The emphasis on math and science has become a point of debate for the Senate’s education committee members. Sen. Michael B. Enzi (R-Wyoming), chairman of the committee, has said that these foci are important when trying to “remain competitive globally.”
This attracted criticism from Democrats, with education committee member Sen. Edward M. Kennedy (D-Massachusetts) calling to “give every American the chance to attend college” without limiting funds for students with other majors.
A page-one headline in Tuesday’s Star said the federal government may prohibit student loan consolidation after July 1. The bill, if passed, would eliminate the option for students still in school. The Star regrets this error.
