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Archive for Thursday, December 22, 2005

Student loan cuts could increase rates

KU officials worry loans won’t be affordable

December 22, 2005

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The U.S. Senate on Wednesday approved by the narrowest of margins deep cuts to federal student financial aid, which could send interest rates for student loans skyrocketing.

The vote, originally a 50-50 tie broken by Vice President Dick Cheney, approved $12.7 billion in cuts to federal aid for students. With less money to use, interest rates on loans from private lenders could climb several percentage points, critics said.

"Certainly, it's worrisome that students wouldn't be able to afford the loan rates," Stephanie Covington, associate director of Student Financial Aid at Kansas University said Wednesday.

Though the cuts wouldn't affect KU's ability to loan money because they lend government money directly, Covington said the climbing rates could scare away students who have been comfortable with low rates the past few years.

Jessica Molina, a KU junior, mirrored Covington's remarks. She said for those entering college on already shaky financial ground, the extra thousands they'll have to pay in interest could turn deter them.

"A lot of people don't go to college," she said. "They can't afford it."

Molina said the government should be concerned whenever it makes a decision that could deter would-be students. Education creates a safe, well-functioning society, she said, especially when a country educates its poor.

"They don't understand that this will come back to them in the long run," she said.

Currently, KU uses Department of Education money to help 10,000 students afford a college education.

Comments

just_another_bozo_on_this_bus 9 years ago

This "budget-cutting" action will be more than wiped out by the next round of tax-cuts for the wealthy that is the real goal of these politicians. But they know the wealthy will make generous campaign contributions, and put them on their corporate BOD's when they retire or hire them as lobbyists. No college grad hoping just to become a barely middle-class public school teacher can match that offer.

Ann Hamil 9 years ago

Whatever happened to the notion that all our "off-shoring" problems could be solved with "retraining" the workforce Mr. President? I guess we can retrain with 12.7 billion less.

just_another_bozo_on_this_bus 9 years ago

Well, he's just concerned that we are getting too many liberal college graduates, and not enough cannon fodder.

badger 9 years ago

sigh

Economic short-sightedness wins again.

Sure, the ledger looks good now if you cut student aid. People can work their way through college, right? But if you decrease the number of people with college education, in five or ten years you have a workforce that is stuck at a certain level of advancement, and at the rate we're shipping our blue collar and manufacturing jobs overseas, those people will have increasingly dwindling career options.

To be any sort of leader in the world as it is, we need engineers, programmers, designers, and scientists. Those people need college educations, and cutting the number of people who can attend college is shooting ourselves in the foot.

Of course, this will go a long way to ensuring that economic power stays in the hands of those who have it now, because if you can afford to send a kid to college, his advantage over a portion of the potential workforce just got better.

Godot 9 years ago

I'm reminded of the article from a few weeks ago about the overwhelming debt college students are faced with when they graduate. I don't want to see college students pay higher interest rates than the rest of us pay. We have become spoiled by the lowest interest rates in history; those interest rates will not last forever, and they are not a "right." Besides, the quote about the interest rates is a prediction, a guess; I've seen lots of dire predictions in the news that never came true.

I worked my way through college, and took out loans, and put a spouse through. too. My kids had to do it on their own, with scholarships and loans, because my earnings weren't enough to pay off loans for two people and save for my children's education.

I think it is time for parents and students, together, to realistically assess the cost of the education and the debt it loads on the graduate when they make their education decisions. Will their chosen field of study yield an income sufficient to pay the debt? If not, will the satisfaction of the career be enough to offset living from hand to mouth?

New parents and grandparents, the ones with small children, should start saving now, so that their children don't have to borrow so much to get an education, if they choose that route.

This borrowing is making indentured servants of our youth.

samsnewplace 9 years ago

It is very difficult for the lower income families to even help our children go to college. These days, the kids have to work themselves through school, hope their grades are good enough for scholarships, apply for grant money and then hope and pray there is a student loan out there for them that won't take a lifetime to pay off. I feel very sorry for our young adults, making the best grades possible in the hopes of going to college in the very near future. What are their chances with $12.7 billion less dollars out there for them? Our government needs to reevaluate their priorities for our young Americans and their futures.

Godot 9 years ago

I also think our univerisities need to reevaluate which is more important for students: luxurious buildings, and high salaries and perks for administration, or an affordable education.

bige1030 9 years ago

Athletic programs ought to contribute to academics, too. I've never been able to take my family to a KU basketball game because of the outrageous prices of tickets! Shoot, if even $5 per ticket went toward helping to finance the education of needy students, how many more students could afford a college education?

Godot 9 years ago

I checked out different news sources on this and now have a better understanding of what the bill entails. I encourage others to find out what really happened.

The change in the loan program that the LJW reports as an increase in interest rates is actually a change from a variable rate (that can and will go up as interest rates are projected to do) to a fixed interest rate. A fixed interest rate loan is a good thing to have in a time of rising interest rates.

The "Cuts" are not cuts in the current level of spending. They are reductions in the growth rate of spending. More money will be available for student loans in the future than is available now, but the increases in the amounts available will be smaller than originally budgeted.

There are some real good things in the bill, such as increasing pell grants; special funding for minorities, etc.

Once again, we have been made dumber by reading, and believing, what the Journal World reports.

badger 9 years ago

A college education, by the way, isn't any sort of right. No one is entitled to one, and I think that point should be made clear.

Increasing the availability of college education is, however, an investment in the country. We get a populace with more job skills and more earning power, one that's more likely to bring out innovations and new ideas. We get people with technical skills geared towards the biosciences, computerization, engineering, and general technological advances. In turn, those people are the ones leading the way for new treatments, new inventions, new developments.

If we actually want to be building the country based on where we want it to be in thirty years, we need to improve opportunities for higher education, and improve opportunities for small business. Fund research into alternative energies, and fund programs that teach nutrition and encourage exercise. If we have a healthy, educated population with opportunities to succeed, that will go a long way towards keeping this country strong from the inside and minimizing the number of people who require some sort of assistance from the government.

badger 9 years ago

Godot said:

"The "Cuts" are not cuts in the current level of spending. They are reductions in the growth rate of spending. More money will be available for student loans in the future than is available now, but the increases in the amounts available will be smaller than originally budgeted."

If they're not keeping pace with inflation and the expected increases in average tuition, then they represent less buying power and, though the dollar amounts may be higher than they are today, less real money by comparison.

Godot 9 years ago

Well, I guess we'll have to see what the inflation rate is. I don't have enough information to make the judgment that they are not keeping pace with inflation.

Calliope877 9 years ago

I'm actually with Godot on this subject. The articles I read from other news websites seem to contradict what this article is saying.

An example is from CNN.com: "Meanwhile, the interest on students loans would also move to a fixed rate of 6.8 percent in July, up from its current variable rate of 4.7 percent. But that change was already set to happen under law, and the deficit-reduction bill does not alter that plan. Student groups tend to support a fixed rate as a protection against unstable, rising interest rates.

Loan limits would increase from $2,625 to $3,500 for first-year students, and from $3,500 to $4,500 for second-year students. The total borrowing limit allowed for undergraduates would remain at $23,000. Lawmakers aimed for a compromise of letting students borrow more at the start of college, reflecting current needs, without sanctioning a bigger overall debt.

The bill would offer grants to poorer, high-achieving students in the first two years of college and older undergraduates studying math, science or high-demand foreign languages."

I don't know. Like Godot said, we'll just have to wait and see.

samsnewplace 9 years ago

badger said: "A college education, by the way, isn't any sort of right. No one is entitled to one, and I think that point should be made clear."

On the contrary, everyone is entitled to go "if" they can afford it some way. There are pell grants, scholarships from many sources, then working hard and saving what you can put towards the cost, as well as the student loans.

My girls have made straight A's since letter grades have been given, don't you dare say they are not entitled to go to college. They have worked so hard for so many years to make the best grades possible and then one day go to college and make a better way in life than their mom or dad could do. I have a junior at KU and I have a senior at LHS and I am a very proud mom of them both.

A fixed rate is a good thing I agree, and once again the LJW messes up....nothing new.

Calliope877 9 years ago

I kind of disagree with Badger's comment too.

I think there are a LOT of students who probably SHOULDN'T be in college because they're only there to get away from home and party; they're in college because their parents want them to go; or they're in college because they think that's what they should be doing after high-school -- but I don't think it necessarily means they have no right to be there.

I remember when I worked for KU and I wanted to go back to school part-time both the HR b!@tches and my supervisor told me that "College isn't a right, it's a privilege." I thought that comment was complete utter bull$h%t, and I still do. The fact that they worked for the university irked me even more. If you work your butt off for it, save money, and have your heart, mind, and soul into getting good grades then it's your RIGHT to go through higher education.

I quit that job, found a job that actually encourages me to attend college, and I'm presently a sophomore at JCCC.

MyName 9 years ago

The change in the loan program that the LJW reports as an increase in interest rates is actually a change from a variable rate (that can and will go up as interest rates are projected to do) to a fixed interest rate. A fixed interest rate loan is a good thing to have in a time of rising interest rates.

This is not completely accurate: The fixed loan rate they are moving to is higher than the variable loan rate would have been (the interest on student loans also would move to a fixed rate of 6.8 percent in July, up from its current variable rate of 4.7 percent.), so I don't see how that would be a good thing for the students. Especially since the Fed is almost finished with this cycle of rate increases. This works out to be an extra $420 for a loan of 20K. Basically an extra 2 or 3 months of paying on the loan.

Not only that, but the GOP is also increasing the fixed rate for parents from 7.9% to 8.5%, which is about $120 on a loan of 20K.

I'm just glad I got my loan refinanced before these increases.

The "Cuts" are not cuts in the current level of spending. They are reductions in the growth rate of spending.

This probably won't make or break anyone, but it still means students pay more money while the GOP lowers taxes on rich people. There's no way you can rationalize this. It's just plain greed.

Eleanor 9 years ago

From the Riverside (Calif) Sentinel:

December 15, 2005 Ohio Congressman Boehner's "Tricks" Are Not For Kids By Daniel Auld

When Ohio Congressman John Boehner recently told a gathering of student loan bankers that he had some "tricks up my sleeve to protect you," he wasn't talking about new tricks.

He was talking about the oldest trick in the book: "Protecting" business people from competition and innovation. Stopping consumers from getting lower rates and better terms for their student loans.

These tricks are not for kids.

The student loan business is now one of the most profitable in America, says Fortune Magazine. And it did not get that way because student loan bankers are smarter, better or less expensive than bankers in other industries.

It is more profitable because they have more protection from competition. And now Boehner, head of the House Committee that oversees student loan legislation, is promising them even more protection from the one force that drives down prices, improves service, and stimulates innovation: Competition, of course. Which in the student loan business in almost non-existent.

Thank you, Congressman Boehner.

That is the way it was until earlier this year, when in January, the Department of Education ruled that borrowers looking to reconsolidate their student loans could sidestep the longstanding anti-competitive rule against doing so.

It was cumbersome, but effective. Borrowers had to use a two-step process of reconsolidating into the federal governement's Direct Loan Program, then reconsolidating again with a private lender offering better rates. Before then, borrowers were locked in to their current lender no matter what other lenders offered them a better deal.

In May, the Department of Education set aside another longstanding anti-consumer policy by ruling that borrowers who are still in school could convert their variable rate student loans into fixed-rate consolidaton loans before rates increased in July. That way they could take advantage of historically low interest rates, much as millions of other borrowers do with their home loans.

While borrowers celebrated, consumer bankers plotted.

Enter Boehner. Buried deep in legislation to raise prices on student loans are provisions that will largely outlaw the reforms that introduced so much competition into student loans earlier this year.

If passed, student loans would once again be the only thing sold in America that cannot be freely refinanced.

Columnist Dick Morris calls the anti-refinancing scheme an "obnoxious .. ripoff." Terry Savage, the financial columnist of TheStreet.com, says there is "no way" borrowers should support this plan." The New York Times calls it "Robbing Joe College to Pay Sallie Mae," the country's largest student loan provider. The Times Union of New York, calls plans to outlaw refinancing a "student loan shame.'

Boehner's tricks are not for kids.

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