|Students destined to go deeper in
The Deficit Reduction Act, passed by Congress and
signed by President Bush in February, is a mixed bag for college
students. But many educational analysts agree that the news for
needy students is mostly bad.
The bottom line: They can borrow
more money through federally regulated programs. But they're going
to pay more for it.
Rates on Stafford loans are going from a variable
rate that hovered around 5.3 percent, or 4.7 percent while students
were in school, to a fixed 6.8 percent.
Most parents seeking to help their kids through school
by borrowing from the federally regulated PLUS program will see
rates jump from 6.1 percent to 8.5 percent.
And the traditional Pell grant program, which gives
money to students with the greatest financial need, will retain
the same grant limits for the fifth year in a row despite massive
increases in college costs.
Students can borrow more
The law has both good and bad news for students, says Donald Heller,
associate professor of education at the Center for the Study of
Higher Education at Pennsylvania State University. "It's good
for students in that they will be able to borrow a little more money
at subsidized rates.
"On the flip side for students, it clearly appears
that loans will be more expensive in the long run, so that's going
to make it worse for students," he says.
According to a new study released by The
Project on Student Debt, the "interest rate scheduled for
July 2006 will result in payments that are 20 percent higher than
the 2004-2005 rates, more than doubling the total interest paid
over the life of the loan."
"It's a terrible thing," says Joshua Chaisson,
a junior majoring in economics at the University of Southern Maine,
who works with the Student Public Interest Research Groups, a political
action network, on financial-aid-related issues. "It's a really
sad day for students."
Not all bad news
Larry Zaglaniczny, director of congressional relations for the National
Association of Student Financial Aid Administrators, also sees pros
and cons. While it hinders students in many respects, "in other
respects it does some good things for students."
Graduate students will now be eligible to apply for
PLUS loans, which were available only to parents of students. Undergrads
will be allowed to borrow more in Stafford loans for their first
and second years of college. But the total amount they can borrow
for college under the program stays the same.
In addition, the one-time origination fees now attached
to Stafford loans will be phased out by 2010. But a 1-percent, one-time
default aversion fee will become mandatory on Stafford loans, and
in some cases students will be asked to pick up the tab.
For more on these student programs, see "A
closer look at student loans."
U.S. government will benefit
An aspect of the law that is attracting interest -- and some ire:
The federal government stands to make billions from the student
loan program for use toward reducing the deficit.