02.02.06 | Deficit Reduction Act takes a bite out of student loans and raises interest rates
From the New York Times…
Budget Measure Increases College Loans and Rates
By JONATHAN D. GLATER
Published: February 2, 2006
With the narrow passage of the spending bill by Congress yesterday, students and their parents will be able to borrow more money to pay for higher education but will face higher interest rates on these federal loans beginning in July.
Some critics have argued that the higher interest rates are, in effect, a cut in student aid. But the legislation also potentially generates nearly $14 billion in revenue over five years by capturing what has at times been a windfall to lenders: the difference between the interest rates paid by students and rates paid by lenders.
Before, lenders could keep profits generated when rates they had to pay were lower than those paid by borrowers; now, that spread will have to be paid to the government. (The government will still pay lenders when the rates they pay are higher than borrower rates.)
The bill increases the rate on loans taken out by parents, known as PLUS loans. It had been scheduled to rise to 7.9 percent from the current 6.1 percent on July 1; it will now increase to 8.5 percent as of that date.
Under current law, the interest rate on federal Stafford loans, taken out by students, will rise to 6.8 percent from 5.3 percent.
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Nice job, guys. Good to see our elected representatives hard at work.
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