Stafford Student Loan News

This article appeared today in the Boston Globe:

Panel retreats on proposal to cut student loan aid

By Paul Basken, Bloomberg News | August 10, 2006

WASHINGTON — A Bush administration panel has withdrawn a proposal to eliminate most federally backed student aid after protests from colleges, students, and banks.

“The current situation doesn’t allow the commission an opportunity to understand the details or defend the idea,” Charles Miller, chairman of the Commission on the Future of Higher Education, wrote yesterday to fellow commissioners.

A draft of the commission’s final report included a proposal that would allow federally backed loans only for low-income students. Miller’s withdrawal of the idea removes from consideration a plan that opponents warned could hurt 5 million students and veterans and cost them an estimated $32 billion in benefits.

Miller’s panel is due next month to issue its final report on ways of making college more affordable and relevant to US economic needs. It is to meet today in Washington to review the draft of its final report.

The draft proposed a 45 percent increase in the main federal grant program for college students. The plan also suggested the elimination of 75 percent of the federal loan programs that are not based on financial need.

University and student groups protested, saying the recommendation fails to understand that much of that lending comes at no cost to the federal government.

Even banks expressed concern, since the additional protections help lenders serve middle-income students who otherwise might not be eligible, said John Dean, special counsel to the Consumer Banking Association. The bulk of federally backed student loans are handled by banks that lend to students with a promise of government repayment in the case of default.”

Stafford Loans are a type of Federal financial aid that many students use to cover the cost of education. So what does this mean, exactly?

1) It’s a loan - it has to be paid back

2) Stafford Loans must be taken out in the student’s name, they cannot be taken out in the parent’s name

3) They are awarded by your school’s financial aid department. You cannot get a Stafford Loan unless your school has awarded you one.

4) There is a maximum amount you can borrower

5) The interest rates are fixed - so you don’t have to worry about Bernanke’s interest rate hikes. They can, however be raised by Congress. New rates normally go into effect on July 1st of the following year.

And most importantly - there are two types of loans: subsidized and unsubsidized.

Subsidized Stafford loans do not accrue interest while the student is in school (normally more than 12 credits). This means you save money in the long run. This also means that financial aid offices give these loans to people who need the most help.

Unsubsidized loans begin to accrue interest from the day the loan is disbursed. You pay more in interest over the life of the loan than in subsidized loans. Though because the government does not pay the interest, these loans are awarded to more people and can have a higher amount awarded each year.