Back to School: New Student Loan Rules in Effect
Starting or going back to college this fall? Backpack? Check. iPad? Check. Student loan? Just hold on a minute. As detailed in the Chicago Sun-Times, the rules for getting and repaying student loans have changed significantly, effective July 1st.
- New direct government funding lowers loan costs
- More money available for tuition and related expenses
- Private loans still available to cover excess costs
Private Lenders Out of Federal Program
The Health Care and Education Reconciliation Act of 2010 included provisions changing the way students get education loans. The government now funds student loans directly, through the college or university itself. By offering the loans directly, the programs cut out the middleman – banks and other lenders – and lower the costs of funding. This leaves more money to pay for the actual expenses of college.
The Department of Education’s website, Federal Aid First, explains the education loan landscape. Undergraduate students can borrow $5,500 to $12,500 per year. Per year amounts for graduate students increase to $20,500 maximum. Need-based Stafford loans currently carry interest at 4.5 percent. The rate for other Stafford loans is 6.8 percent. Parents with children in college can get Direct PLUS loans at 7.9 percent to pay for education expenses not covered by other financial aid. The government also offers consolidation loans to refinance existing non-private education loans.
Students can still get private student loans. Big players like Citigroup and Sallie Mae offer loans that can bridge the gap between federal loan limits and actual expenses. Federal education loans should have better terms for the borrower ordinarily. A crisis of student loan defaults helped trigger these changes. Renegotiation options and other relief may be available for persons having trouble repaying existing loans.
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