February 2, 2009

Economic Stimulus Bill Update

Posted in Grants, Legislation Affecting Students, Stafford Loans, Student Loan News, The Financial Aid Process tagged , , , , , at 8:09 AM by Joe From Boston

Last week the House of Representatives passed the economic stimulus bill.  In their version, the Pell grant would increase and the Stafford loan borrowing limits would increase by $2000 per year.

The Senate is set to vote on the bill next week.  In the meantime, they’re reconciling their version of the bill which does not have the Stafford Loan increases.

Opponents say the increases will lead colleges to raise tuition even further; proponents say that higher federal loan limits would lower the amount of private loans taken out for college.


  1. Cynthia, you have some very good points, but I’d like to correct a few facts.

    Federal loans are not cash cows. Lenders make VERY little money off them, compared to a mortgage, as you do above. They are subsidized because your average 18 year old has zero credit, and would likely never qualify for a loan on their own credit. The government guarantees these because the students are such a high risk. Without that guarantee, no one would lend to a student at such low interest rates

    Now regarding the interest rate not lowering, contact your Congressmen and women – they’re the ones who control the rates, not the lenders! It literally takes an act of Congress to change the interest rates. They also wrote the rules about how often you can consolidate.

    Private loans do make more money for the lenders, but are not subsidized at all. They have such high rates because the student, with little to no credit, is a very high risk to take on. Most lenders now require a co-signer because of this, which also helps lower the interest rate.

  2. Cynthia said,

    Student loans should not be a “cash cow” for the banking industry. Borrowing to complete college and graduate school is one thing – subsidizing the banking industry is just plain wrong. Something MUST be done to address serious issues
    1. One-time consolidation with the weighted average of your loans.
    (Try having all the home mortgage live under this rule!) If homeowner can refinance multiple time to take advantage of lower interest rates, thus lower monthly payments, then so should we.

    2. No change for interest rates to be lowered. Once you take out a student loan for that year – that is the interest rate you are stuck with for life. Again, student loans should not be the golden egg for the banking industry. When interest rates drop, then ALL student loans should also have the same reductions.

  3. Hi Dan,

    The PLUS and Stafford loan rates are reset annually by Congress. Usually they are set in or around May and take effect the following July. Meaning that the 8.5% was set in May 2008, at which point it wasn’t a bad deal at all. It’s still lower than Private loan rates.

    Expect to see Congress addressing this around May of this year for the next academic year, 2009-2010.

    And yes, I’m deadly serious – it literally takes an act of Congress to change the rates, as these are federally backed loans. They revisit it annually.

  4. Dan Gaudreau said,

    Parent plus loans are 8.5%, what’s up with that?
    Any plans to get this rate to an affordable level?

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