This document outlines loan changes, including new limits on student & parent loans, as well as the elimination of Grad Plus loans. https://www.nasfaa.org/uploads/documents/OB3_Loan_Changes_Brief.pdf
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Thanks for posting this summary.
IMO, this specific statement is a good thing:
“Students and parents can no longer rely on federal funding to cover the full cost of attendance (direct institutional costs and living expenses).”
For people using loans (whether federal or not) to cover full COA, they need to find a more affordable option. I know for some there might not be a more affordable option, whether we are talking undergrad or grad/professional school.
In the big picture, this change will likely lead to more students taking non-federal loans. Often, when there are more potential customers in a given market, the resultant competition for them can bring innovation.
So maybe in this market (on the private loan side) we will see lower interest rates and/or innovation in the space either thru loan qualification, loan terms and/or even repayment plans. Maybe more schools will get into the loan business (plenty already are.) Of course there will be some bad actors too, so buyer beware. Personally, I already see the loan companies that offer loan interest rates in the mid-teens as bad actors.
If this federal change cuts back on how many loans students and/or parents were taking out, that’s generally a good thing. Even if that means fewer degrees, whether undergrad or grad/professional.
Time will tell the impact of the feds limiting loan access.
I think it’s a load of crock they approval Chiropractors as ‘professional’ but not Physical Therapists -who in my mind, have much better training and outcomes. Also this eliminates graduate Nursing programs in a time of medical provider shortages. It also leaves out small, niche professional fields like Prosthetics. I had a student just graduate in that field - he makes prosthetics for amputees -there aren’t that many people trained in this field and the grad school is not cheap.
ETA: Before I get yelled at - nothing wrong with Chiropractors -they help a lot of people. But if they are allowed funding, PT should be as well.
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Would private lenders set interest rates based on the risk level they see, without the governmental motivation of “even if some default, those who graduate will earn more money, boost the economy, and pay more taxes”? Seems like the higher risk students would be offered interest rates higher than the mid-teens, if they are offered loans at all.
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I’m not in that business so I can’t answer your questions. I do know that Ascent Funding, a CC partner, offers non-cosigned loans for undergrads with interest rates in the teens.
I really doubt it.
A student loan is an unsecured loan, often to an unemployed person (student). They may have potential but they have no track record and banks are a business so have to underwrite a loan based on risk and reward. What is the ‘right’ interest rate? Credit card interest rates, also unsecured loans but usually to employed people, range from 15-29%and repayment starts immediately.
I just had a conversation today with a friend. She used to work at Public Radio and said that her former co-workers who were in their late 30-40s couldn’t afford to buy a house in the city so had to go far out to the 'burbs to find a good school district and a big enough house because they were still paying student loans. I said “ask them where they went on spring break while in college, and how many times they refinanced their loans/changed plans to pay interest only or one of the other repayment plans.” She agreed that was part of the problem since they’d all been out of college for 10+ years.
The whole “they wasted money on unimportant things in college” and “they choose to pay less than they can afford on their loans so that they can spend money on wasteful things” is not rooted in reality for most. Most people don’t want to take on unnecessary debt, and most want to get out from under their debt as soon as possible. It’s just really hard sometimes, especially for those who don’t have families who can help them financially.
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My comments will be limited to the grad professional programs and the new relevant federal loan limits.
Sallie Mae already fills 100% of the gap left by the new federal loan limits.
Every week another institution (college) announces that they will offer loans to cover the gap left in the professional programs (and note the terms of the federal loan limit changes aren’t yet final, nor are the affected programs.) If students can’t get loans to close the gap left by the federal limits, schools will have to lower their prices and/or offer more aid. (or know they will get fewer apps, including fewer apps from the types of students that are typically institutional priorities.) It’s in their own interest to offer loans. Some schools are offering loan forgiveness too.
Several states have already stepped up to offer loans to close the gap as well. North Carolina is (for only residents at this point.) There are more, just a google search away.
Some schools and finance companies are creating various outcomes based loans and income share agreements.
Some financial companies, including CC’s own partner, Ascent Funding, already offer non-cosigner loans to students at lower rates than your 15%-29% range (still typically in the teens though, so obviously not recommended.)
I expect more changes to come, things are evolving really quickly.
My ‘I doubt it’ comment was about the prior comment that schools or states or private lenders will lower interest rates. Private lenders have regulators that need to make sure they are making money. States and schools can’t just print more money like the feds can, and they can’t control interest rates like the feds can so can’t lend are artificially low rates. Credit cards are doing underwriting to determine if rates should be at 11% or 15% or 29%, and often the 29% is after a borrower has missed a payment or two.
The schools can lower tuition, or states could require a public service period for loan forgiveness or to remain in the state. Makes sense the NC is only giving the loans to residents as they are most likely to stay in the state.
IMO, the most likely is for hospital systems to team with a school like Kaiser did in California. Both can benefit with one getting lower tuition and the other getting a supply chain. Easier for a big state that has lots of need for doctors, pharmacists, etc and lots of spots for their internships and residencies. My D’s BIL would have loved to stay in Idaho but there weren’t enough spots for him to intern/residency, nor the specialty he wanted. He’d still like to return to that state or a nearby one.
Or the next administration can just change the student loan program back again.
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