Newspaper article St Louis Post-Dispatch (MO)

New Aid for Students: U.S. Lowers College Loan Fees, Rate Cap

Newspaper article St Louis Post-Dispatch (MO)

New Aid for Students: U.S. Lowers College Loan Fees, Rate Cap

Article excerpt

When students apply for their college or trade-school loans next year, they'll get a welcome surprise. The new federal budget, just passed in Washington, reduces the upfront fee they'll be charged.

Starting with loans made after next July 1 for the 1994-95 school year, you'll pay a fee of no more than 4 percent when you take the loan, compared with up to 8 percent today.

This new, lower fee applies to all guaranteed Stafford student loans (the government's main loan program) as well as to the lesser programs, Supplemental Loans to Students and Parent Loans to Undergraduate Students.

Your interest-rate risk also will decline. The maximum rate that student borrowers might have to pay at some point in the future has been reduced, for the second time in as many years.

Students newly seeking loans should first apply at the financial-aid office of the school they'll attend. The school may handle your loan itself or refer you to a private lender. Here are the changes, most of them starting next July 1:

Stafford loans. These loans come in two varieties: (1) Financially needy students get subsidized loans. The interest on these loans is paid by the federal government, as long as the students are in school. When they leave school, the students make the payments themselves. (2) Students not judged financially needy get unsubsidized loans, meaning that they have to pay all the loan interest personally. There are limits on how much you can borrow, depending on how far along you are in your education. A freshman, for example, can borrow up to $2,625: sophomores $3,500.

Formerly, the interest rate on Stafford loans was fixed. Since 1992, however, the rate on new loans has been variable, changing each July. Right now, you're paying the 91-day Treasury-bill rate plus 3.1 percentage points. On this year's loans, that adds up to 6.22 percent.

The new bill makes a change. Starting in July 1995, the rate on new loans drops to 2.5 percentage points over Treasury-bill rates as long as the student is in school. That's a break for the students and parents who pay the loan interest themselves. (This rate drop will apply to other federally backed education loans as well. …

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