Big Cuts to Federal Student Loan Programs
At least $12 billion will be cut from federal student loan programs in 2007 as part of the Deficit Reduction Act signed by President Bush in February — meaning borrowing money for college will become more costly. Madeleine Brand speaks with Day to Day personal finance contributor Michelle Singletary about strategies for coping with the high cost of higher education.
MADELEINE BRAND, host:
And, finally, advice on how to deal with the high cost of higher education. A new law cuts $12 billion from federal student loan programs. That means students and parents will be paying even more to borrow money for college-- that, on top of rising tuition costs. And here to talk about this is Michelle Singletary. She writes the syndicated column, The Color of Money, and she's our regular guest for discussions on personal finance. Hi, Michelle.
Ms. MICHELLE SINGLETARY (Syndicated Columnist): Hi.
BRAND: So, tell us about this new law. How does it change student loan rules, and when do those changes go into effect?
Ms. SINGLETARY: Well, most significantly, it raises the interest rates that students are going to be paying on federally-backed student loans. Currently, they pay variable interest rates, from anywhere from 4.7 to 5.3 percent, and after July 1, the rate goes up to a fixed 6.8 percent, which is the highest rate since 2001.
BRAND: That's a pretty big change. Is there something students can do right now to protect themselves?
Ms. SINGLETARY: Well, yeah; they may think about consolidating. Right now, they can consolidate under the old rates. Now, with that comes some issues, because you may give up some deferral payment time, but lots of students have a ton of student loan debt. I mean, the average student has almost $20,000.00--some much more than that, $40,000.00, $50,000.00. So, you've got to look at that July 1 window, and start looking to see if consolidation makes sense for you, and how much it's going to cost, and what lenders you're going through. So, they've got not a lot of time between now and June 30.
BRAND: And, Michelle, what about people who have to take out student loans after July 1, people going into college in the fall?
Ms. SINGLETARY: They're going to be paying a high interest rate. I mean, this is all part of the Deficit Reduction Act, and, unfortunately, they're going to see--I mean, the rates might have gone up anyway, because, you know, market rates are going up, but the other thing is that it's not variable anymore, so if, for some reason, the market goes down, you know, in the past, if the market was down, they would get that rate reduction. But now, with this new law, they will not.
BRAND: So, they'll be paying a higher rate, you can't avoid that. But is there anything that they can do to mitigate the effect of that?
Ms. SINGLETARY: Well, you know, you need to look at your borrowing. Lots of students actually borrow more than they need. They borrow money to pay for other expenses other than their tuition costs, so they need to carefully look at how much they're borrowing and only get what you need. And it may mean that you have to go to a different college than you had in mind, because it's going to cost thousands more to borrow now.
BRAND: And what about scholarships? Have you looked into that? Are there scholarships that are available that, perhaps, students don't know about that they should be looking into or a place where they can go to find out more information about that?
Ms. SINGLETARY: They need to be looking at every possible pot of scholarship money. The Internet is a great search tool. If you're a minority student, you ought to look into the Bill Gates Minority Scholarship Fund. I mean, it's going to be tough out there.
The other thing is you need to apply for financial aid right away, and if you haven't already done so, if you're going to school in the fall, you need to be doing that. Don't wait, because the scholarship money goes first. Any money the schools have go right away, so you don't want to wait on that.
BRAND: Michelle Singletary writes the syndicated column, The Color of Money, and she's our regular contributor on matters of personal finance. Thanks, Michelle.
Ms. SINGLETARY: You're welcome.
BRAND: And if you have a personal finance question you'd like to ask Michelle, go to npr.org and click on the Contact Us button. Please put Michelle in the subject line.
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