Smart Borrower Blog

Congress Reaches Tentative Deal on Student Loans


Jun 27th, 2012 @ 12:57 PM by Amber Nelson


After months of worrying whether the interest rate will double on their college loans, undergraduate students can breathe a little easier today.

The 3.4 percent interest rate currently available on federally subsidized student loans that was set to increase to 6.8 percent on July 1 will now remain at the lower rate for the next year, pending a tentative deal made today by Congress.

But that lower rate comes at a cost. Lawmakers decided that instead of receiving a six-month grace period after finishing school, students will now be responsible for paying that interest as soon as they graduate. Congress estimates that this will generate about $2 billion dollars to help close the gap in the billion federal student loan budget.

But as this rate is only guaranteed for this year, students applying for additional loans next year may have to pay higher rates and be responsible for the interest right after finishing school.

 

“It really makes the loans kind of unpredictable and hard to understand for students and families when these changes are happening through the budget process,” said Megan McClean, managing director of policy and federal relations for the National Association of Student Financial Aid Administrators, a trade group as quoted in a Washington Post article.

Another cost of re-instating the low rates is the loss of federally subsidized loans for graduate students. Loans will still be available to these students who are seeking advanced degrees, but they will no longer be able to enjoy having the interest paid by the government during their schooling. Interest will start accruing as soon as the loan is made. This will cost an estimated $18 billion to graduate students over the next ten years.

All clauses of the new legislation are set to take effect on Sunday and are expected to affect some 7 million students.

 

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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