New Student Loan Deal Good, And Bad, For Borrowers

"President Barack Obama is expected to sign new student loan legislation this week, making market-based interest rates the law of the land for federal student loans and immediately lowering rates for borrowers," according to U.S. News & World Report. "While the compromise reversed the interest rate hike on subsidized loans, which jumped from 3.4 to 6.8 percent on July 1, experts say the deal is a mixed bag for students. Here is a rundown of the benefits and drawbacks of the new student loan legislation. The Good: Stability: Prior tweaks to student loan interest rates were temporary and agreements to extend or reauthorize the adjustments often led to political showdowns. 'The past couple of years we've been in these situations where students haven't known up until the last minute what their interest rate was going to be, because we were waiting for Congress to act,' says Megan McClean, director of policy and federal relations at the National Association of Student Financial Aid Administrators. ... • Universal: Last year Congress extended an interest rate reduction, but only for subsidized Stafford loans, which are issued to students with financial need. The new market-based plan lowers rates for all federal loans, which stood at 6.8 percent for unsubsidized Stafford loans and 7.9 percent for PLUS loans. Any student enrolled at least half-time in a degree-granting program is eligible for unsubsidized loans, and PLUS loans are available to parents, graduate students and those pursuing a professional degree. 'This is a deal that benefits all borrowers,' says McClean, who points out that 80 percent of students who take out subsidized loans also borrow unsubsidized funds. The Bad: • Fluctuation: Market-based interest rates are not static. As the economy improves, they will rise, and experts predict that will happen quickly."

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