Timely loan payments mean savings for students

by Tess Langfus

University students burdened with student loans will get a small deduction on their interest rates this fall, as long as they keep up their monthly payments for one full year.
Three federal changes going into effect this fall will reduce student loan obligations for borrowings this year and in the future.
Under two new federal plans, students will be required to pay back a lesser amount of their original principle balance of their loans for 2000-2001 and subsequent years. The amount, to be applied to student loans beginning in November, is equivalent to a reduction in the interest rate of the loan.
If monthly payments are not made on time, the student will be required to repay the government the amount originally deducted from the loan.
The second plan announced by President Clinton encourages students to consolidate their student loans with the government by granting them a reduction in the consolidated loans interest rate. Again, payments must be made on time for 12 months.
The president is undertaking these incentives as part of an administrative rule change within the student loan program, said John Engelen, director of Federal Relations.
Both plans announced in August are offered as an incentive to students to repay their loans on a timely basis.
“Anything that eases the debt burden that our students have in their student loans makes it less expensive for them to attend an institution of a higher education,” said Nancy Sinsabaug, interim director of student finance at the Office of Scholarships and Financial Aid. “And we’re all in favor of that.”
Students will receive a credit to their student loan of 1.5 percent of their loan disbursements, an amount equivalent to an interest rate reduction of about 0.24 percent.
According to the New Direct Loan Repayment Incentives program, a student who makes monthly payments on time for a $1,000 loan will end up paying only $985 in principle balance after the reduction of the loan fee amount.
Loans that are consolidated will receive an interest rate reduction of 0.80 percent.
Another loan plan announced by Clinton is a 1998 federal law that will now be implemented by the Department of Education encourages teachers to commit to working full time in low-income schools for five consecutive years.
After the fifth year of teaching in a school with at least 30 percent low-income students, the teacher may apply for a $5,000 reduction in his or her student loans.
The University, which offers only Direct Student Loans and does not work with a guaranteed loan program, is the largest direct-lending university in the country, Sinsabaug said. So any incentive the federal government issues for Direct Student Loans will automatically affect University students.
Along with the five-year commitment to a low-income school, there are two other requirements to the plan. First, the loan for which the $5,000 will be forgiven must have been issued prior to the fifth year of the teacher’s employment. Secondly, at least one of the five years of the teacher’s employment must have been after the 1997-98 academic year.
“We need public school teachers. We need good teachers and it’s not a field that pays a huge salary,” said Steve Yussen, dean of the College of Education and Human Development. “So even though some might regard it as being unfair or differentially favoring teachers over others, goodness knows with the level in which teachers are compensated, I think it’s a good public policy.”

Tess Langfus welcomes comments at [email protected].