More generous terms due for student loans

STAYING AHEAD

August 22, 1993|By JANE BRYANT QUINN

NEW YORK -- When students apply for their college or trade-school loans next year, they'll get a welcome surprise. The new federal budget, just passed in Washington, reduces the upfront fee they'll be charged.

Starting with loans made after next July 1 for the 1994-1995 school year students will pay a fee of no more than 4 percent when they take the loan, compared with as much as 8 percent today.

This new, lower fee applies to all guaranteed Stafford student loans (the government's main loan program) and to the lesser programs, Supplemental Loans to Students and Parent Loans to Undergraduate Students.

Interest-rate risk also will decline. The maximum rate that student borrowers might have to pay at some point in the future has been reduced, for the second time in as many years.

Here are the changes, most of them starting next July 1:

* Stafford loans. These loans come in two varieties: (1) Financially needy students get subsidized loans. The interest on these loans is paid by the federal government, as long as the students are in school. When they leave school, the students make the payments themselves. (2) Students not judged financially needy have to pay all the loan interest.

Formerly, the interest rate on Stafford loans was fixed. But since 1992, the rate on new loans has been variable, changing each July. Right now, students pay the 91-day Treasury-bill rate plus 3.1 percentage points. On this year's loans, the rate is 6.22 percent.

The new bill makes a change. Starting in July 1995, the rate on new loans drops to 2.5 percentage points over T-bill rates as long as the student is in school. (This rate drop will apply to other federally backed education loans as well.)

To keep interest payments from rising too high, Congress has imposed a cap. Starting next July, the maximum loan rate can't exceed 8.5 percent, compared with 9 percent today.

* Supplemental Loans for Students (SLS). Used by students who need more money than they can get from Stafford loans. Students can qualify regardless of income.

The new bill merges SLS with unsubsidized Staffords, so they'll become a single program. The current, 11 percent cap on SLS loans will drop to 8.5 percent.

* Parent Loans to Undergraduate Students (PLUS). The interest-rate cap will drop to 9 percent from 10 percent currently. This program lets parents borrow the entire cost of their child's education, minus anything received in student aid.

Instead of being disbursed all at once, as is currently done, parents will get PLUS loans in two parts -- a half payment each semester.

* Direct loans. At present, most students and parents borrow from private lenders, who coordinate with the school and a guaranty agency.

3' 1993, Washington Post Writers Group

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