Student loans getting easier to pay off
Loan limits also increasing for the coming school year
By Ruth Mantell, MarketWatch
Last update: 7:36 p.m. EDT June 30, 2008
WASHINGTON (MarketWatch) -- Paying back need-based federal student loans will get easier starting Tuesday as interest rates take their first dip in a series of declines that will eventually cut rates in half.
On Tuesday, the interest rate for subsidized Stafford loans originated for the 2008-2009 school year will decline to 6% from 6.8%, and the rate will hit 3.4% for 2011-12. Over the life of a loan, the average four-year college student starting school this year with subsidized Stafford loans will save about $2,570, according to U.S. Public Interest Research Group.
"When you work it out to the impact per month, it's the cost of a latte," said Mark Kantrowitz, publisher of FinAid.org, a Web site offering financial-aid information.
About 5.5 million students take out subsidized Stafford loans every year, according to U.S. PIRG. Interest on subsidized Stafford loans, which are based on need, are not charged while students are in school.
"Overall, lowering interest rates on these loans will help those most affected by rising student debt: students from low- and middle-income families," according to a recent report from U.S. PIRG.
The lower rates are part of a larger education-loan reform package enacted in the College Cost Reduction and Access Act of 2007.
The act also takes steps such as:
Increasing by $2,000 the amount that undergraduates can borrow per year through unsubsidized Stafford loans, which are not based on need. According to Sallie Mae, a typical freshman will be able to borrow $5,500 in federal loans, up from $3,500 last year. Sophomores will be eligible for up to $6,500 and juniors/seniors $7,500.
Increasing the maximum Pell Grant scholarship. For 2008-2009, the maximum award would be increased by $490, to $4,731.
Providing tuition assistance to undergraduates who commit to teaching in public schools in high-poverty communities or high-need subject areas.
Providing loan forgiveness after 10 years for public servants.
"With our economy putting enormous financial strains on Americans and tuition prices continuing to soar, these new financial aid benefits could not be coming at a more critical time for college students," said Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee.
End of Story
Ruth Mantell is a MarketWatch reporter based in Washington.
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