Student Loan Consolidation Rates Set
Congress passed and voted on February 1 the Deficit Reduction Act of 2005, including a massive reduction in federal student loan programs. The $ 11.9 billion in student loan cuts, including changes in laws relating to the consolidation of student loans, which have a negative impact on students seeking a college education and others who seek to consolidate their loans of more high. The industry expects a rush of students seeking to consolidate the current low rates that are expected to increase July 1.
The Deficit Reduction Act of 2005, S. 1932 was approved on February 1 the strict sense of the House of Representatives. Passing by a margin of two votes of 216-214, S. 1932 was signed into public law Feb. 8 by President Bush, thereby approving the $ 11.9 billion in student loan cuts over the next five years.
Students and graduates are now in danger. With rising college costs each year and the next higher interest rates to consolidate student loans, students are rushing to consolidate before the July 1 rate increase.
Student Loans Take the most affected
The cuts to federal student loans are the worst among the cuts to other federal programs including Medicaid, Medicare and food stamps.
Most provisions of the legislation to the student loans will take effect on July 1 and will be implemented over time. Some provisions include an increase to 6.8 percent for federal Stafford loans, the fees as low as 4.7 percent. PLUS fixed interest rates jump to 8.5 percent from 7.9 percent. The current legislation leaves consolidation loans fixed rate in place.
Consolidate student loans before July 1 Rate Increase
With student loan consolidation rates set to rocket, on July 1, now is the time for students and graduates to consolidate, according to NextStudent, the Phoenix-based education funding company. Students and graduates now are urged to consolidate the current consolidation rates can be as low as 2.75 percent with benefits applied. Other incentives include building a longer payment term, one monthly payment and no prepayment penalties.
The following are other provisions that affect the consolidation of student loans that take effect on July 1, 2006. Students and graduates should be aware of the new rules so that they can take action now:
Consolidation Loan Changes
- Unique holder rule is not changed
- Removes in school and spousal consolidation options.
- A consolidation loan may be made later in the DL Program only if a FFELP borrower wishes to obtain an income contingent repayment plan, the borrower is trying to avoid default, but is conditioned by the requirement that the loan has been submitted a guaranty agency for what used to be called “preclaims assistance,” but now is labeled as “default aversion.”
- Similarly, in Conf. Rpt. is a provision that only if a FFELP borrower has an application for a consolidation loan by a lender refused or rejected the request because the borrower wanted income-sensitive repayment terms, and then the borrower can receive a loan Direct Consolidation.
- A borrower with a loan payment can get a DL consolidation loan to resolve the defect.
- Unless otherwise specified the terms of DL consolidation loans are the same as FFELP consolidation loans.
Approval of the Deficit Reduction Act brings major cuts to student loans and a change in the rules relating to the consolidation of student loans. Although the law has changed to the detriment of those seeking a higher education, students and graduates still have the option to consolidate before the interest rate will increase July 1.
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