In my last column, I wrote about how the sequester could deeply impact students of all ages—by cutting education jobs, programs like Head Start, food stamps, and limiting financial aid. Well, once again, kids trying to get an education are at risk of being undercut by the federal government.
The interest rate of new federally subsidized Stafford loans will revert to 6.8 percent from 3.4 percent. The rate subsidized loans, which go to low-income households, was supposed to rise to 6.8 percent back in June 2012, but the rate’s expiration was postponed for a year. This year’s extension lasts until June 30, 2013. If Congress does not act to change the rules or extend the loan rate expiration date, an estimated 7.4 million college students will be affected.
Note that each year the date to change the rate is extended, the federal government loses out on about $6 billion in revenue. But students don’t necessarily have to be the ones paying the price. If there would have been more oversight on the financial aid process, the federal government could have prevented a loss of $200 million in federal student aid fraud since 2009.
What’s a good solution? Rather than postponing the expiration again, the House Education and the Workforce Committee argued that Congress should reevaluate their rate-setting process for all government-issued college loans.
FoxNews.com reports that the Department of Education has also been sending out letters to inform Direct PLUS Loan borrowers that their fees are being raised as a direct result of the automatic budget cuts (or the sequester) that happened after the federal government could not come to a fiscal agreement. Fees for loans issued after March 1, 2013, will have an adjusted loan rate fee—from 4.0 percent to 4.204 percent.
Students are taking more and more hits, but at least they’re putting up a fight.
Historically Black Colleges and Universities are not ruling out suing the Obama administration for disproportionately affecting their students with new financial aid policies. The policies, which were enacted in October 2011, allow a Direct PLUS Loan borrower’s credit to be checked back five years—rather than the previous 90-days standard. This limits many students, especially students from a low-income background, from being able to take out these loans without having a parent with a spotless credit history.
On the upside, the Consumer Financial Protection Bureau announced new rules that will be enacted to protect borrowers from federal loan servicers, which collect debts from student lenders.
The new rules will require all servicing firms to be subject to audits by the CFPB, according to the Huffington Post. The new rules aim to make servicers accountable by investigating possible reports that may mislead borrowers on their rights and terms of their loans. The end goal for the borrower is to avoid ruining their credit.
Today, the nation’s student loan debt surpasses credit card debt.
Maybe a complete overhaul of the system may seem like the next step, given that nothing else seems to be working. But instead of only impacting students who are striving to get an education, maybe we should be focusing on oversight the federal government has slacked off on instead.