Congress voted and passed Feb. 1 deficit reduction law of 2005 which included massive cuts to federal student loan programs. 11.9 billion in student loan cuts, including changes in student loan consolidation laws, will negatively impact students seeking college education and others seek to consolidate their higher-interest loans. The industry expects a rush of students looking to consolidate at the current low prices set to increase on July 1.
The deficit reduction Act 2005, p. 1932, was tightly approved Feb. 1 of the House of Representatives. Past a two-vote margin of 216-214, S. 1932 was signed in public law Feb. 8 by President Bush, thus approving $ 11.9 billion in student loan cuts over the next five years.
Students and graduates are now in danger. With college costs rising every year and the upcoming higher interest rates on student loan consolidation, college students are rushing to consolidate before July 1 interest rate hike.
Student loans take the hardest hit
The cutbacks of federal student loans are worst among cuts on other federal programs including Medicaid, Medicare and Food stamps.
A majority of legislative provisions that student loans will enter into force on July 1 and others will be implemented over time. Some provisions include an increase to 6.8 percent for federal fast loan stafford loans, from prices as low as 4.7 percent. PLUS fixed interest rates will jump to 8.5 percent, from 7.9 percent. The law leaves consolidation loan current fixed percentage in place.
Consolidate Student Loans Before July 1 Consider Increase
With student loan consolidation rates for the skyrocket on July 1, now is the time for students and graduates to consolidate, according to NextStudent, Phoenix-based education funding company. Students and graduates are now encouraged to consolidate as current consolidation rates can be as low as 2.75 percent with benefits being used. 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 come into force on July 1, 2006. Students and graduates must pay attention to the new regulations so that they can now take action:
Consolidation loan changes
-Easy holder rule does not change
– Eliminates in school and spouse contribution consolidation opportunities.
-A subsequent consolidation loan can be made in the DL program, only if FFELP borrower wants to obtain an income contingent repayment plan and the borrower is trying to avoid default, but is subject to the requirement that such a loan be filed with a guarantee agency for what used to be called “preclaims help” but is now marked as “standard aversion.”
– Also in Conf. RPT. Provides a provision that only if a FFELP borrower has an application for a consolidation loan rejected by a lender or the application is rejected because the borrower wanted income-sensitive repayment terms, then the borrower can receive a direct consolidation loan.
-A borrower with a defaulted loan can receive a DL consolidation loan to settle the standard.
– Unless otherwise stated, DL consolidation loans are the same as FFELP consolidation loans.
Approval of the deficit reduction action brings great cuts to student loans and a change to the regulations regarding student loan consolidation. Although legislation has changed at the expense of those seeking higher education, students and graduates still have the opportunity to consolidate before interest rates are set to increase on July 1.