Student loans take largest cut in history
The cut in student loans, the largest in the program's history, represents nearly a third of the almost $40 billion Congress backed to reduce the federal deficit during the next five years. The Senate approved the bill in December and it now goes to President Bush, who is expected to sign it into law.
The bill reduces federal subsidies to private lenders, sets a higher, fixed-interest rate for students and parents, and requires borrowers to pay a 1 percent fee to loan guarantors. It also increases the amount freshmen and sophomores can borrow and provides an additional $3.75 billion in Pell Grants to students who major in certain courses.
Yurie Kuroda, a business management major from Japan, said students should not have to pay the higher rate on their loans, even at a fixed rate.
"Many students have to take out loans and I don't agree with raising the cost," she said.
The bill also expands the criteria for low-income families to qualify for federal aid, according to Nancee Langley, the University of Nevada, Reno director of student financial aid services.
"As a result, more families should qualify for a Pell Grant (through) an application process that is shorter and simpler in terms of the information required," Langley noted in an overview she wrote about the bill.
Student financial aid officials at Truckee Meadows Community College could not be reached Wednesday for comment.
Langley's other observations of the bill's impact:
# Fixed interest rates
The bill, which takes effect July 1, will switch student loans to a higher, fixed 6.8 percent interest rate. Under the current federal formula, the interest rates vary with the market from year to year, but cannot exceed 8.25 percent. Students currently are paying 5.3 percent.
To avoid the higher fixed interest rate, Langley said anyone with student loans should consider a one-time refinancing option to consolidate their outstanding loans before July 1 at the current fixed rate of 5.75 percent.
About 4,000 UNR students borrowed money under the Stafford Loan program in 2004-05 and many of them face higher interest payments, Langley said. The average amount borrowed by undergraduates at UNR is about $15,000 compared to the national average of $20,000, she said.
# Annual borrowing limits
The law raised the loan limits for first-time freshmen from $2,625 to $3,500, and for the second year, the limit increases from $3,500 to $4,500.
"The existing limits are too low, forcing students into multiple and private loans at much higher interest rates," she said.
# New programs
In addition to expanding eligibility criteria for needs-based families to qualify for Pell Grants, the bill also provides supplemental Pell Grants that range from $750 to $4,000 a year to students who major in math, science and specified foreign languages.
# Administrative costs
The bill eliminates mandatory funding to offset the cost to universities and colleges for their federal student aid programs, which means the funds could be reduced or eliminated. That loss to UNR would be about $100,000 a year.
"If left unfunded, the office's ability to continue certain programs and services to students and remain technologically compliant with the U.S. Department of Education requirements for program administration would be in jeopardy," Langley said.