U.S. revamps loans

A bill signed this week will lock in some loans’ interest rates and increase origination fees.

Jamie VanGeest

President George W. Bush on Wednesday signed the Deficit Reduction Act, which will make some of the largest changes to financial aid for higher education in the program’s history.

These federal changes to aid could end up helping or hurting University students.

One of the act’s features involves stabilizing interest rates.

Annual interest rates will be fixed at 6.8 percent for Stafford Loans and Parent Loans for undergraduate students will have a fixed annual interest rate of 7.9 percent.

Kris Wright, the University’s director of financial aid, said consolidation will become unnecessary after the interest rates are fixed because all of the different type of loans will be set at their own fixed rates.

The effective date for the new fixed rates is July 1, so Wright recommends students consolidate their loans now to lock in a lower rate.

Shannon McNeil, a psychology junior, said she sees the pros and cons of a fixed interest rate.

She said she sees the interest rates of loans going higher than the fixed rate in the future, so a fixed interest rate could be a good thing.

The act also included changes in origination fees ” the fee that is paid by students to cover the cost of administering the loan.

University Federal Relations Director John Engelen said origination fees are at 1.5 percent, but will be increased to 3 percent temporarily.

This will cost University students an additional $3.15 million in origination fees, he said.

Wright said that by July 1, 2010, loan origination fees will be down to 1 percent.

Brittny McCarthy, education committee staff member for Rep. Betty McCollum, D-Minn., said the act’s provisions will result in the largest cuts in student financial aid history.

“This Republican plan is a cruel choice that purposely targets students,” she said.

In a speech Wednesday, Bush said “the bill cuts excess government subsidies to lenders and makes other reforms that will help us reduce overall student loan costs by about $22 billion.”

Engelen said private lenders will pass the costs of the cut loan subsidies to borrowing students.

He also said the reduced loan costs will be for the government, not students. The government will collect more money off higher interest rates and loan origination fees, he said.

Additionally, the act will create new grant programs for students majoring in math, science and foreign languages.

However, these new programs don’t make up for the cuts, Engelen said.

Other changes include increasing Stafford Loan limits for first-year students and sophomores from $2,625 to $3,500 and $4,500, respectively. Also, the unsubsidized loan limit for graduate students will increase from $10,000 to $12,000.

Graduate students will also be able to borrow PLUS loans for the first time.

These increases will take effect July 1, 2007, Wright said.

Wright said the government is not increasing the overall amounts students can borrow during their college career.