By Kimberly Chin
Banks and other private lending companies are cutting back on student loan benefits after President Bush passed the College Cost Reduction and Access Act of 2007 on Sept. 27, which redirected funding from student loan companies into federal Pell grants and decreased interest rates for student borrowers.
Banks are reacting to the student loan cuts implemented by the Act by decreasing the discounts given to students, which have helped them compete against other student loan programs. These discounts would offer reductions in interest rates after students make on-time, consecutive payments.
The current tuition for a year at the University without fees is $12,850 per semester. According to finaid.org, “A good rule of thumb is that tuition rates will increase at about twice the general inflation rate.”
The University Office of Financial Aid encourages students to take advantage of federal student loans whenever possible. However, according to the University Web site, “The University recognizes that after all other financing options have been exhausted, students may also need to use alternative sources of financing to help offset the costs of attendance and living.” The Office of Financial Aid declined to contribute statistics or comment on university students loans, but instructs students to pursue “alternative loans,” which are not subsidized by the federal government, only when necessary. “Students should be educated consumers and carefully compare the programs and terms offered.”
Student loan programs are expected to lose $21 billion in the course of five years with the federal Pell grant being raised to a maximum of $5,400 from the current $4,500 and a halved decrease in student loan interest rates from 6.8 percent to 3.4 percent according to finaid.org.
Several lenders such as Wells Fargo & Co. and Nelnet Inc. have already cut down on student loan discounts, especially affecting their federal consolidation loans such as the Stafford loans which are subsidized by the government, according to a Wall Street Journal article. Corporations such as Sallie Mae and Citibank have lowered their interest rate to borrowers who have paid on-time in 36 months to a small percentage of .25 from a previous interest rate of 1 percent for 36 months of on-time payments.
Private lenders are also making it difficult for students to qualify for discounts on PLUS or Stafford loans, according to the Wall Street Journal. Mark Kantrowitz of finaid.org believes that instead of the 36 months of consecutive on-time payments, banks might extend that for a longer period of time.
However, some big lenders such as Bank of America and J.P. Morgan Chase are not reacting as quickly to the federal student loan cuts, leaving their borrower’s benefits alone, according to a Wall Street Journal article.
New York college students are expected to get $2 billion in federal student loans. According to collegeprofiles.com, about 82 percent of the University’s students receive financial aid in the form of loans, grants, work-study and scholarships.
Assistant News Editor Julia Gardiner contributed reporting to this story.
Banks are hitting student discounts hard in lieu of recent cutbacks. (news.bbc.co.uk)