Lower interest rates, fees, increased loan limits among changes
College students, parents benefit from new student loan terms
INDIANAPOLIS — The nation’s college students and their parents will benefit from several major changes in the terms of federal student loans, according to USA Funds® the nation’s leading education loan guarantor.
“Lower interest rates and fees will reduce students’ costs of borrowing for college, while increased loan limits will permit some students to borrow federal student loans instead of private education loans that often provide less favorable terms,” said Gregory A. Ayers, USA Funds senior vice president, policy and administration.
Among the recent changes to student loan terms are the following:
Lower interest rates. Interest rates on variable rate federal education loans, issued prior to July 1, 2006, now are a full 3 percentage points lower than they were for the previous academic year. Repayment rates on Stafford loans that were issued between July 1, 1998, and June 30, 2006, have fallen to 4.21 percent, their lowest level in four years. Stafford loans are the most commonly issued federal student loan type. In addition, fixed rates on new subsidized Stafford loans issued to undergraduate students during the 2008-2009 academic year have been cut to 6 percent. Subsidized loans are available only to students with demonstrated financial need. The federal government subsidizes the interest on these loans while the student attends college; during the six-month, post-school grace period; and when the student is authorized to defer loan payments. Rates on all other new Stafford loans remain at 6.8 percent.
Reduced loan fees. Total loan fees that may be assessed Federal Stafford loan borrowers have been cut by 0.5 percentage points to 2 percent. The origination fee, currently at 1 percent, is scheduled to be phased out altogether by July 2010.
Increased loan limits. Undergraduate students will be able to borrow up to $2,000 more each year in unsubsidized Stafford loans. The student is responsible for all interest that accrues on unsubsidized Stafford loans. The U.S. Congress enacted the increased loan limits in an effort to curb reliance on more-costly, less flexible private education loans.
PLUS loan benefits. Parent-borrowers now will be able to postpone the start of payment on Federal PLUS loans for up to six months after the student for whose benefit the loan was issued leaves school or drops below half-time enrollment. Previously, repayment on parent PLUS loans began within 60 days after the loans were fully disbursed. PLUS loans are available to parents of dependent undergraduate students, as well as to graduate and professional students. An additional change to PLUS loan terms will permit either parents or graduate students to qualify for a PLUS loan, even if the prospective borrower has an adverse credit record, as long as the adverse credit is due solely to a payment on the borrower’s home mortgage or a medical payment being 180 days or less past due. This temporary exception is effective through Dec. 31, 2009.
USA Funds provides information on these and other recent changes to the terms of federal student loans, and many other resources for student loan borrowers, on its Web site.