Take Out Federal Loans Over the Next Yr Before Interest Rates Go Up

Paying for College
1

<p><a href=“HuffPost - Breaking News, U.S. and World News | HuffPost”>HuffPost - Breaking News, U.S. and World News | HuffPost;

<p>The above article describes several changes proposed by the Obama administration regarding higher education financing. Many of those changes are intended to find ways to continue current Pell grant funding for fall and spring semesters, while showing progress in reducing the deficit. </p>

<p>The final policies may get worse than described below --depending upon budget negotiations and who wins the 2012 elections, but they probably will not get better than is currently proposed by the Obama Administration.</p>

<p>I recommend that students take out the maximum amount of federally subsidized loans this year for which they are eligible, because the interest rates are likely to get worse by the 2012-13 college year.</p>

<p>The subsidized Stafford interest rate is scheduled to go from 3.4% in 2011-12 to 6.8% in 20112-13.</p>

<p>The current Perkins subsidized loan program will expire in 2012, and the money is being “recalled” from the colleges that now control it. The current proposal is to greatly expand the amounts of money available for Perkins loans, and the maximum loan amounts, but to increase the interest rate from the current 5% to 6.8%. The loans would work like unsubsidized Staffords - the interest on the money would accrue while in school without a subsidy. This proposal reportedly is designed to: a) take over more of the student loan market from private lenders, b) provide funding in a way that does not show up in the official federal deficit. </p>

<p>The proposal is also to allow a longer repayment period than the current 10 years for the new Perkins (25 years has been mentioned). The new Perkins money would still be allocated to individual colleges, which disbursed according to a formula that would reward colleges with good financial aid policies. </p>

<p>Subsidized Stafford loans will no longer be available for grad and professional students. One source said this would not take effect until 2012-13, but I have not seen a confirmation of this. The main current subsidy for the Federal government pays the interest while the student is in school. Instead, the interest would acrue soon after the loan is taken out. </p>

<p>Unsubsidized Staffords are proposed to continue to be available for grad and professional school (which have a 6.8% rate).</p>

2

<p>Eligibility is limited by year in school, so it is a bit difficult to load up!</p>

3

<p>I agree with Kelsmom.</p>

4

<p>kelsmom -</p>

<p>Do you know if Happykid could take out a Stafford this year and stash it in the bank as advised by charlieschm? She currently has a tuition and fees scholarship for 15 credits/semester at her community college, and is commuting from home so her expenses are very nearly zip. However, when she does transfer after finishing her A.A., her expenses will increase dramatically.</p>

5

<p>In answer to a question above, you can only take out loans for eligible college expenses. Therefore, if most costs are covered by other financial aid sources, you can only take out loans for the difference. The loans you take out can count towards the $2,500 federal annual tax credit for college expenses.</p>

<p>However, my point was that if you were planning on waiting until later years in college or grad school to use subsidized loans, you are better off using the loans now. For example, if someone was intending to not take out a total of more than 19,000 of subsidized Staffords, they might not take out the $3,500 allowed their freshman year. However, when they go to take those loans out in later years, each $1000 of borrowing will cost much more in repayment.</p>

<p>The reverse of that argument is that some people seek to spend down their savings during the first year or two of college, so that they can seek more financial aid in their later years.</p>

6

<p>The non subsidized Staffords are not scheduled to go up, it seems, nor are PLUS. Most families offered subsidized loans take them. It’s the unsubs that are not such a great deal even at current interest rates if family credit is good and HELOC is available.</p>

7

<p>I wouldn’t think that borrowing unsub ahead of time would be advisable, since it’s 6.8% interest & begins accruing when the loan is disbursed. If you have sub eligibility, borrow it, and save it for later there is no interest penalty (since interest does not accrue until the loan goes into repayment) - but has cpt points out, most who are eligible for sub loans do actually use them in the year in which they are offered.</p>

8

<p>Question about eligibility.
My D’s were offered sub Staffords at several of the schools that included loans in their package.
At a school that does not include loans in their package, we were told that they could get the same amount of sub Staffords and Perkins as well.
Is it an institution by institution thing or a federal eligibility thing or both? And should we ask for Perkins loans at the schools that only mentioned Staffords?</p>

9

<p>brklynmom, Perkins are determined by the school based on information on the federal govt form. Schools get a limited amount of Perkins $ and distribute it as they see fit-- usually prioritizing students who apply on time and have 0 or very low FAFSA efcs. </p>

<p>Staffords are limited to $5500 but if the student’s need is met with other funding (as in a no loans school), I would think the Stafford would be unsub.</p>