Congress voted on and passed Feb. 1 the Deficit Reduction Act of 2005 that included massive cuts to federal student loan programs. The $12.7 billion in student loan cuts and changes in laws regarding student loan consolidation will negatively impact those students seeking a college education and others seeking to consolidate their higher interest loans. The industry expects a rush of students seeking to consolidate at the current low rates before the imminent July 1 increase.
Congress voted on and passed Feb. 1 the Deficit Reduction Act of 2005 that included massive cuts to federal student loan programs. The $12.7 billion in student loan cuts and changes in laws regarding student loan consolidation will negatively impact those students seeking a college education and others seeking to consolidate their higher interest loans. The industry expects a rush of students seeking to consolidate at the current low rates before the imminent July 1 increase.
Prior to the bill’s passing students and concerned citizens throughout the country made last-minute phone calls and sent e-mails urging their representatives to vote no on budget reconciliation, but to no avail. Previously the bill passed the House by a narrow margin of 212-206.
Students and graduates now are in jeopardy. With college costs increasing every year and the forthcoming higher interest rates on student loans and student loan consolidation, the dream of a college education for many could become just that: an unattainable dream for students and families who fear they cannot afford college let alone the cost of student loans.
Student Loans Take the Hardest Hit
Throughout this past fall and early winter students, parents and other concerned citizens had been gearing up for the vote. While the government looked to cut major spending in the wake of disasters such as Hurricane Katrina, students spoke up through the Stop the Raid on Student Aid Campaign. Unfortunately, the campaign in the end did not stop the passing of the five-year $39.7 billion legislative package that includes the $12.7 billion in cuts to student loans, by far the worst of the cuts to federal programs that also include Medicaid and food stamps.
The final vote came on the heels of President Bush’s Jan. 31 State of the Union address, which was expected to garner support for budget reconciliation. The House reconvened on the same day for the Second Session of the 109th Congress.
A majority of the legislation’s provisions to student loans will take effect on July 1 and others will be implemented over time. Some provisions include an increase to 6.8 percent for federal Stafford Loans, from rates as low as 4.7 percent. PLUS fixed interest rates will jump to 8.5 percent, from 7.9 percent.
Consolidate Student Loans Before July 1 Rate Increase
With student loan consolidation rates set to skyrocket on July 1, now is the time for students and graduates to consolidate, according to NextStudent, the Phoenix-based education funding company. Students and graduates now are urged to consolidate as current consolidation rates can be as low as 2.75 percent with benefits applied. Other incentives to consolidate include a longer payment term, one monthly payment and no prepayment penalties.
The following are other provisions affecting student loan consolidation that take effect July 1, 2006. Students and graduates should be aware of the new regulations so that they now can take action:
Consolidation Loans
• Retains the single holder rule
• Eliminates spousal consolidation
• Eliminates in-school consolidation
• Eliminates reconsolidation in both FFELP and DL, except that a FFELP borrower whose delinquent loan has been submitted to a guaranty agency for default aversion is eligible for a DL Consolidation loan for the purpose of obtaining an income contingent repayment plan
• Provides that a FFELP borrower may consolidate in the Direct Loan Program only if a FFELP lender denies the borrower’s application for a consolidation loan or denies the borrower’s application for a consolidation loan with income sensitive repayment terms. Additionally, directs the Secretary to consolidate loans of defaulted borrowers
• Provides that, unless otherwise specifically provided, the terms of DL
consolidation loans must be the same as FFELP consolidation loans
Final consideration of the Deficit Reduction Act brought a vote in favor of cutting student loans and changing regulations regarding student loan consolidation. Although the legislation has changed to the detriment of those seeking a higher education, students and graduates still have the option to consolidate before the July 1 interest rate increase.
NextStudent believes that getting an education is the best investment you can make, and it is dedicated to helping you pursue your education dreams by making college funding as easy as possible. Learn more about Student Loan Consolidation at NextStudent.com.
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