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Navigating student loan changes

Every year in America, approximately 12 million students borrow money to seek higher education. A majority of these students consistently borrow from the federal government who offers a wide range of federally subsidized and unsubsidized loans. The money students borrow from the federal government is guaranteed, but it is important to understand how congressional legislation can affect student ability to borrow money, and student ability to pay it back.

Interest rates were set to double from 3.4 % to 6.4% on July 1 if Congress didn’t act. Democrats wanted a permanent freeze on the rates for two years in or- der to draft a better solution. The President and Republicans proposed tying the interest rates to the 10-year Treasury bond with a cap.

Finally, in July, Congress passed the “Bipartisan Student Loan Certainty Act of 2013”. The bill was signed into law by the President and went into effect immediately. Wondering how the new student loan deal is going to affect students? Here are some aspects of the legislation important for students to understand:

1. Undergraduate students will get a massive break.

Stafford loans, the financial aid loan of choice for most undergraduates, will fall from 6.8% to 3.4%. This interest rate is for the life of the loan. Meaning if interest rates rise in two years, your interest rate is fixed.

2. The interest rate of your federal student loan is now fixed to the market.

The interest rates of student’s federal loans are now tied to the market. Meaning, they will use indicators in the financial markets to adjust the interest rates of the loan. Specifically the 10-year Treasury bond, if they rise, loan rates could rise also.

3. Federal student loans have a cap on their interest rates.

As part of the new law, feeder- al loans now have a cap on their interest rates to prevent them from skyrocketing during times of higher inflation. Whether the caps are too high is debated but they are as following,

Stafford Loan (undergraduates): 8.25 percent cap

Stafford Loan (grad students): 9.25 percent

PLUS Loan (grad students and parents): 10.5 percent

4. Loan rates are going to rise in the future.

A projection done by the “Institute for College Access & Success” (a student loan advocacy group) projects that Stafford loans will exceed their old interest rate of 6.8% by 2017. Parent Plus loans and Stafford loans for graduate students are also expected to exceed their old interest rates in just 3 years.

Whether students consider these changes good or bad, it is now the law of the land and will have a direct impact if you have to borrow federal money to fund your education. This information applies to students who took out loans retroactive to July 1 of 2013.

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