Need a little help paying for college? The federal government can help. As of July 1, Uncle Sam rolled out a bevy of new programs and policy changes designed to give a helping hand to traditional and older students. Ranging from lower student loan interest rates to increased grant aid, these changes in college financing could beef up your bottom line.
More free cashThe federal government is expanding its grant programs in two ways -- through bigger, more available Pell Grants and increased eligibility on merit-based scholarships, according to the National Association of Student Financial Aid Administrators.
"The increases in the Pell Grant will affect about seven million students," says Mark Kantrowitz, publisher of the financial aid Web site FinAid.org. "Students who already qualified are going to receive an extra $600 or so and an additional 800,000 new students will qualify."
In addition to increasing the Pell Grant to $5,350 for the 2009 to 2010 school year, as of July 1 the grant will be available year-round, giving those who start school in a spring or summer semester the opportunity to qualify for the grant at the time they start school.
The other change to government-sponsored gift aid applies to fewer students and focuses on two merit-based programs: the Academic Competitiveness Grant and the National Science and Mathematics Access to Retain Talent Grant, or SMART. The former involves an award of up to $1,300 to first- and second-year Pell Grant-eligible undergrads. The SMART grant award is worth up to $4,000 for Pell Grant-eligible third- and fourth-year students majoring in science, math, critical needs foreign language or certain liberal arts programs. Both are now available to non-U.S. citizens and those enrolled half-time, according to the Department of Education.
Cheaper loansMuch of the new legislation aims at making federally backed student loans more affordable and accessible to undergrad students.
"With the College Cost Reduction and Access Act of 2007, the fixed interest rate on subsidized Stafford loans for undergraduate students has gone down, which will positively affect students this year," says Paul Dockry, senior vice president of the loan servicing division for Wells Fargo, which disburses federal student loans and originates private loans. "If customers take out a (subsidized Stafford) loan between July 1, 2009 and June 30, 2010, their interest rate is now 5.6 percent." That's down from 6.8 percent.
The 2009 to 2010 interest rate decrease is one step in a larger effort to keep lowering student loan interest rates and fees, reports the National Association of Student Financial Aid Administrators. While interest rates on unsubsidized Stafford loans will stay at 6.8 percent, those who qualify for subsidized loans may want to consider starting school the following year or hold off on getting their loans until July 2010, when rates on subsidized Stafford loans will drop to 4.5 percent. Rates drop again in 2011 to 3.4 percent.
In addition to a sharp decrease in interest rates, the new legislation will also lower origination fees on subsidized and unsubsidized Stafford loans from 2 percent to 1.5 percent. Meanwhile, borrower benefits, such as the six-month grace period borrowers have after graduation before payment begins, deferment and forbearance options will remain the same.
Dockry adds that the changes don't just affect students taking out new loans.
"If students have variable rate Stafford loans that they took out prior to July 1, 2006 (the last year the government offered variable rate student loans), now's a great time to consolidate," he says. Students will be able to consolidate at very low levels through June 30, 2010.
"If (students) are still in school (or within the grace period), the current interest rate is 1.88 percent. If they're already in repayment, the current interest rate is 2.48 percent. That's on all Stafford loans, subsidized and unsubsidized," he says.
Because, by law, students can only consolidate their federal loans once, the deal is applicable just to those who haven't already consolidated. Meanwhile, for students who consolidate fixed interest rate loans, the new interest rate they pay will be a weighted average of the rates of the underlying loans. Dockry says that, depending on the size of the loan, consolidating could allow borrowers to extend their repayment term -- a possible added bonus.
"If borrowers have $60,000 or more in outstanding federal debt, they can extend their repayment term (from the standard 10 years) to 30 years," he says. "If they have less than $60,000, it's a sliding scale."