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Experts split: Are FY11 student aid increases enough?


In an interview with eCampus News last June, Education Secretary Arne Duncan said federal officials would push lawmakers to pass a bill that would eliminate private-sector loans with high interest rates that are sometimes half of a student’s monthly income.

“I just think we should be in the business of investing in students and not in subsidizing banks,” said Duncan, adding that the government underwrites 97 percent of student loans every year, with most of that money coming from private lenders.

Kate Taylor, director of financial aid at Illinois College in Jacksonville, Ill., a private school with 1,000 students, said admissions workers have encouraged students to use loans signed for by their parents. These federal loans, known as Parent PLUS Loans, include a 7.9 percent fixed interest rate and more flexible payment options, such as deferments—options students with little or no income might not be eligible for.

Parent PLUS Loans have become more popular in recent years, but a national unemployment rate of about 10 percent has complicated loan repayment, Taylor said.

Parents use their prior year’s tax information when applying for their child’s loan, but for suddenly unemployed parents, that reported income is inflated and outdated. This forces financial aid officers to calculate a projected income for the coming year, which brings loan payments back to a reasonable level.

“We’re seeing parents who would appear on paper to have the resources to pay for education, but so many families don’t have anything available to make monthly payments right now,” she said.

Myers said Holy Cross’s admissions officials are reviewing parents’ loan appeals at a faster clip during the recession.

“Most families are feeling an immediate impact, so we are looking at those appeals a lot quicker,” she said, adding that loan repayment calculations have changed: the Holy Cross admissions officer now projects for six months of unemployment when projecting annual income. The college used to project for three months of unemployment.

Obama’s budget proposes a new cap of 10 percent of a student’s income—down from the current 15 percent—and loan forgiveness after 20 years of payments instead of the current 25 years. In his Jan. 27 State of the Union address, Obama proposed loan forgiveness after 10 years for students who enter public service.

Kantrowitz said capping payments at 10 percent of a student’s discretionary income would slash monthly payments for college graduates coping with major financial commitments for the first time.

A student who owes $40,000 and makes $30,000 annually would see his or her payments fall from $172 a month to $115, Kantrowitz wrote in a recent article on FastWeb.com, a site that helps students find scholarship opportunities.

“The acceleration of the loan forgiveness will ensure that borrowers are not still paying back their own federal student loans when their children enroll in college,” he wrote.

Links:

Fiscal Year 2011 Budget – Student Aid

FastWeb

FinAid

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