Student Loan Info and Resources

February 13, 2006

For Immediate Release

Students’ costs may be manageable even with passage of S 1932: TG projects up to $5 monthly increase for student loan borrowers
Round Rock, Texas — On Feb. 1, 2006, Congress passed S 1932 — The Deficit Reduction Act of 2005 — which included the Higher Education Reconciliation Act of 2005. Included in the legislation are two student loan interest rate changes which have been reported as dramatically increasing the cost of federal student loans to borrowers. The Congressional Budget Office (CBO) has estimated that these changes in borrower interest rates, in combination with maintaining the variable interest rate formula for lenders, will result in a $15 billion savings to the federal government over a five-year period and $36.3 billion savings through 2015.

To get a better picture of how these changes will affect individual student loan borrowers, TG — a nonprofit student loan guarantor that assists more than 550,000 parent and student borrowers each year — conducted a preliminary analysis of the impact on TG FFELP borrowers.

“We wanted to examine the actual impact of this one policy change because of its potential impact to students and families,” said George Torres, TG assistant vice president for congressional and legislative relations. “However, we certainly are not meaning to increase or diminish the impact of the policy choice of reducing borrower benefits as a method to control the cost of entitlement programs.”

Stafford Loan Interest Rate
The first “change” that TG examined was actually placed in the Higher Education Act in 2001. Congress chose to leave this scheduled change in place with this reconciliation bill. In effect, the Stafford loan interest rate will change from a variable interest rate (indexed from the three-month Treasury bill rate plus 1.7 percent while the borrower is in school or in grace, and 2.3 percent when the borrower enters repayment), to a fixed 6.8 percent interest rate for the life of the loan.

Over the past few years, the Treasury bill rates have been at record lows, resulting in extremely low interest rates on Stafford loans. For the period of July 1, 2005, through June 30, 2006, the rate on these loans is 4.7 percent while a borrower is in school or in grace and 5.3 percent when the borrower enters repayment.

However, Treasury Bill interest rates have been going up since July 1, 2005. According to the CBO estimates, if the current rules remained in effect, and the rate stayed variable, it would increase to 6.2 percent while the borrower is in school and 6.8 percent when the borrower enters repayment on July 1, 2006. Also, this rate could continue in future years to increase up to the statutory cap of 8.25 percent.

The main difference between the old and new rules for student borrowers is the amount of interest that is capitalized into their loan value while they are in school. Under the old rules, this rate would be 6.2 percent during 2007, while it will be 6.8 percent under the new rules. For a student who enters a bachelor’s degree program in the fall of 2006 and borrows the aggregate limit of Stafford loan funds (all unsubsidized) over a five-year period (for a total of $23,000), this will result in $436 dollars of additional debt when the student enters repayment. This translates into a $5 month increase in loan payments (from $255 to $259 month) and a total cost of $602 over the life of a 10-year loan.

PLUS Loan Interest Rate
The second interest rate change contained in the bill applies to PLUS loans (loans taken out by parents on behalf of their children). Under the current rules, this rate would have been fixed at 7.9 percent beginning July 1, 2006. With the enactment of S 1932, this rate changes to 8.5 percent. This translates into an additional cost of $382 for every $10,000 borrowed by parents under the PLUS Loan Program.

“It’s important to note that while there may be some additional cost, funds are still available,” said Torres. “The possible increase in cost should not act as a barrier to students enrolling in higher education.”

TG’s public service Web site, www.AIE.org, provides a loan repayment calculator that can help borrowers determine how their payments may be affected by the interest rate changes on July 1. In addition TG’s financial aid experts are available by phone at (800) 845-6267 to address borrowers’ concerns or answer specific questions about planning and paying for college.

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About TG: TG is a public, nonprofit corporation that helps create access to higher education for millions of families and students through its role as an administrator of the Federal Family Education Loan Program (FFELP). Its vision is to be the premier source of information, financing, and assistance to help all families and students realize their educational and career dreams. Additional information about TG can be found online at www.tgslc.org.

$1.1 Billion in Hurricane Aid to Open Schools, Educate Students
“We wanted to get the funds into states’ hands as quickly as possible, so we accelerated the application process. We used the states’ own data to develop a formula to distribute the funds in the fairest way possible.”

— Secretary Margaret Spellings

The U.S. Department of Education today announced that more than $1.1 billion in funds from the Hurricane Education Recovery Act, signed by President Bush on Dec. 30, 2005, will be made available to reopen schools in the Gulf Coast region and to help educate students across the country who were displaced or impacted by Hurricanes Katrina and Rita.

• $645 million will be provided in four installments under the Temporary Emergency Impact Aid for Displaced Students (Impact Aid) Program to assist local education agencies in 49 states and the District of Columbia in paying for the cost of educating students who were enrolled in public and non-public schools. The first installment of $120 million will be made immediately, with $750 per student ($937.50 per student with a disability) provided.
• Approximately $500 million will be immediately provided under the Immediate Aid to Restart School Operations (Restart Aid) Program to help reopen and restart damaged schools in the states most affected by the storms. This is on top of the $253 million in aid delivered to the region in January.
• $5 million will be provided under the Assistance for Homeless Youths (Homeless Aid) Program, to help state education agencies address the needs of students displaced by the storms.

Hurricanes Katrina and Rita created real and pressing educational needs in the Gulf region and nationwide.

• More than 370,000 students were unable to attend school in the weeks following the hurricanes.
• About 158,000 students were still displaced as of Oct. 1, 2005, and are eligible for Impact Aid.
• More than 1,100 schools—public, private and parochial—were still closed two weeks following the storms.
• Public and private school enrollment in New Orleans stands at about 30 percent of the pre-Katrina level.

The aid is designed to meet the real needs of families, schools and communities.

• Impact Aid funds may be used to pay school personnel, to provide books and other classroom supplies, or to cover school transportation and health costs.
• Impact Aid funds may also be used to offer in-school or outside supplemental services such as tutoring, mentoring and counseling.
• Restart Aid funds may be used to recover student and personnel data; to replace or repair school district information systems; to replace instructional materials and equipment, including textbooks; to rent mobile educational units and lease space; and to recreate instructional plans and curriculum development.
• Homeless Aid funds may be used to identify and enroll students, to cover transportation costs, to provide school supplies, and for other purposes.
• Public, private and parochial schools may qualify for the aid.

The U.S. Department of Education and federal government continue to offer assistance to help the Gulf Coast region recover and get families back on their feet.

• Charter School Grant — The Department provided more than $20 million through a special charter school grant to Louisiana to help open or reopen charter schools in order to serve the children affected by the hurricanes. This has enabled public schools in New Orleans to reopen as charter schools, expediting the children’s education and the region’s recovery.
• Higher Education Help — the Department allocated $190 million to the Louisiana Board of Regents and the Mississippi Institutes for Higher Learning to assist colleges and universities in those states affected by the hurricanes. In addition, the Department is currently distributing over $18 million (out of $30 million total) in unused federal campus-based student aid funds to severely affected colleges.
• Hurricane Help for Schools (www.hurricanehelpforschools.gov) — This website was launched to serve as a nationwide clearinghouse resource for schools to announce their needs so Americans could help meet them. First Lady Laura Bush recorded a public service announcement asking Americans to contribute. To date, more than 650 matches between contributions and needs have been made by individuals, businesses and organizations through the site.
• Donated Federal Supplies — The Department has helped coordinate the donation of thousands of desks and other supplies by the federal government to the Gulf Coast region.
• Student Loan Forbearance — The Department offered six months of student loan-payment forbearance for borrowers in the federal student loan programs impacted by the disaster.
• Aid to Colleges and Universities — Post-secondary institutions educating displaced students have received aid (up to $1,000 per student) to help defray new and unexpected costs resulting from the hurricanes.

More information on the Hurricane Education Recovery Act can be found at: http://www.ed.gov/policy/elsec/guid/secletter/051230.html