Student Loan Cuts

Cutting federal spending has proved elusive as ever. As defense and the entitlement juggernauts of Medicare, Medicaid, and Social Security continue to grow, mostly everything else in our US federal budget has been squeezed again and again in search of savings.

The spending cuts bill that was passed by the Senate last Wednesday would save $39.7 billion during the next five years. In the bill that was passed 51-50 with Vice President Cheney's vote, approximately $12.7 billion will be cut from the student loan programs.

The legislation would fix interest rates at 6.8 percent for Stafford loans, even if commerical rates are lower. Currently, rates are variable and for this year, the rate is 5.3 percent. Parents who take advantage of the Parent PLUS loan will be fixed at 8.5 percent. This year it was at 6 percent. Overall, the program will also be extended to parents of graduate students.

Now, some say that with the economy continuing to get better, interest rates will continue to rise. So in the end students will see some savings by the time they graduate, but for those that have chosen to pursue a variable rate on their federal loans and they are looking at graduating this year, you may have to start consulting the Financial Aid Dept on whether it should be appropriate for you to consolidate your loans to a low fixed interest rate.

The bill will also raise the amounts that first-year and second-year students can borrow through the Stafford loan program. Under the plan, the cap of $2,625 for freshmen would go up to $3,500. for sophomores, it will go from $3,500 to $4,500. Unfortunately, the overall cap of $23,000 over five years will remain the same, and it has stayed at that same level over more than a decade. This may prove difficult for students that are pursuing double-degrees or programs that will last for five years, and they may almost max out the amount of federal subsidized loans they can get from the Stafford program.

The Pell Grant allocation remains capped at $4,050, but the annual income cutoff for the maximum grant goes from $15,000 to $20,000. The legislation also creates $4,000 grants for students who major in math, science, and certain foreign languages.

With Case's average cost of $41,429 per year, the actions by the federal govt concerning federal loans has to be a sign of worry among propsective and current students.

The bill which has been passed by the Senate will go to the House for approval. If there are no changes, then it will go to President Bush for his signature. The legislation will go into effect immediately. So we may look at mid-January as the implementation date. For seniors graduating this coming May, you may have to start consulting with the FinAid office on whether you can consolidate your loans now and lock them at a fixed low interest rate. For current students, I do not know if you can consolidate your existing loans now, then deal with getting loans at a higher interest rate next year. All answers will likely be found at the FinAid dept, or check with the Dept of Education web site.