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2006: A look back - A look ahead  
  Change was the name of the game in 2006 while the biggest push for reform in 2007 will be aimed at college-related debt.
 College financing
 Personal finance calendar  Personal finance calendar 

College financing in 2006: A year of change

So-called Academic Competitiveness Grants are worth $750 and $1,300 to first- and second-year students who have completed "rigorous" coursework in high school. With the ink barely dry on the legislation, grants were just awarded for the first time ever in fall 2006. Grants, of course, do not have to be repaid.

The SMART Grant (short for "National Science and Mathematics Access to Retain Talent") is worth up to $4,000 a year for third- and fourth-year undergrads majoring in math, science, engineering and certain foreign languages.

Meanwhile, a number of recent changes on the financial-aid front immediately affected those paying off their halcyon days at university.

For the first time ever, students taking out a federal Stafford loan will pay a fixed 6.8 percent for the life of the loan. Only Congress can amend the rate. That's a radical shift. Previously, Stafford loans were variable, meaning rates were reset every year. The fixed rate applies to Staffords issued as of July 1, 2006.

 Those with the older model Staffords pay variable rates, unless, of course, they consolidate, locking in a loan at a steady rate.

And in fact, that's just what borrowers did earlier this year -- to the tune of nearly $40 billion worth of consolidation. Looming increases drove the stampede to lock in deals at low rates, typically just over 5 percent, before the July 1 deadline.

The federal Plus loan was changed, too. The most unwelcome, no doubt, was its rate increase from 6.1 percent to 8.5 percent for Plus loans issued by private lenders. On the other hand, the Plus loan program, which had been limited to parents of college students, was expanded so that graduate students can borrow, too.

"That's huge," notes Brett Lief, president of National Council of Higher Education Loan Programs. "It's opening a whole new program to graduate and professional students who previously had to borrow at commercial rates and providing them with a federally based loan that's more affordable."

Overhauling 529 plans
Even if your budding Einstein is years away from dorm life, 2006 brought changes that affect you, too.

That's particularly true for those contributing to a 529 college savings plan. These investments, first introduced in 1996, are sponsored by individual states although you don't have to be a resident to participate in a particular plan. Each 529 plan varies in terms of investment offerings, but earnings in all may be taken out free of federal taxes as long as they are used for bona fide higher education expenses.

And now these federal tax breaks are carved in stone. Until Congress acted this year, they were set to expire in 2010, meaning families who cashed out of 529s at decade's end would have ended up pocketing far less.

-- Posted: Nov. 1, 2006
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