Within the next two years, major reforms may take place that could help students pay off their huge college debts after graduation. In Washington, D.C., the House of Representatives passed a temporary bill that will cut federal subsidized student loans to 3.4 percent over five years until 2012. Also, The Student Loan Sunshine Act is being presented in front of Congress, House and Senate to put stricter rules on private loan lenders, which could help students and their families make better decisions about their choices in financing higher education.

How will the cut work?

This interest rate cut would only apply to students with federal subsidized loans starting in the 2007-08 academic year. This temporary bill will only last until 2012 when the interest rate reaches its lowest 3.4 percent, and then House of Representatives will have to decide whether they would like to implement this bill again or let it lapse. It is an attempt to help students get out of debt and this will be an issue raised once again in five years.

Thomas A. Little, vice president and general counsel of Vermont Student Assistance Corporation (VSAC), fully supports the proposed Student Loan Sunshine Act. (Izabela Socha, photo)

Thomas A. Little, vice president and general counsel of Vermont Student Assistance Corporation (VSAC), says the interest rate cut is a great way to help students. Congress is trying to keep student loans at reasonable interest rates. He says that lowering the interest rate is extremely risky because these loans are given out to need-based students that have no credit history, and sometimes this can be a problem.

In addition, there is also a proposal to increase Pell Grants, which would additionally help some students, but could hurt other non-profit companies like Vermont Student Assistance Corporation (VSAC).

“One of the practices that they use is if they’re going to spend or increase in one aspect of higher education programs, they have to find a way of cutting some other program,” Little says.

If Pell Grants are increased, student assistance corporations like VSAC might have to reorganize their state public service programs since they rely on government funding.

A spotlight on private loans

Sen. Edward Kennedy D-Mass. and Sen. Richard Durbin, D-Il., are presenting The Student Loan Sunshine Act “to provide greater support for students and families across America who are struggling with great difficulty to pay for college,” according to their proposal to Congress.

Kennedy and Durbin’s proposal to Congress on Feb. 1, said that the average student debt has increased by 57 percent at public colleges and 38 percent at private colleges. Also, Sen. Kennedy states that a decade ago, private loans accounted for only three percent of student funding for higher education and since then, the number of private student loans has increased 1200 percent. Private student loans account for $17 billion and 20 percent of all students borrowing for higher education.

Suzanne Hurst, Assistant Director of Student Financial Aid, suggests that students keep track of all their loans. (Izabela Socha, photo)

The act is proposing that higher education institutions would have to report their practices in choosing “preferred loan” companies and informing students about their options in choosing private loans. The proposed bill will focus on keeping track of relationships between higher education institutions and private loan companies.

Little says that some schools “brand” a certain lender so that it is easier for them to process the electronic applications. The different applications would take up too much time to process for the some schools’ financial aid offices.

According to the National Association of Student Financial Aid Administrators (NASFAA) Web site, the bill would require education institutions which receive federal funds to report four main things: benefits received from the loan lender, interest rates for student loans, evidence justifying the relationship between the institution and the lender, and provide all of this information to the students.

St. Michael’s debt

Suzanne Hurst, Assistant Director of Student Financial Aid at St. Michael’s, says students really need to find the best loans for their personal situations and they should keep track of all documentation about loan disclosures. Hurst also thinks the proposed Student Loan Sunshine Act is a great way to help students figure out what will be best for them.

“It’s a really good deal for students and parents because education is expensive and when students have to borrow they really have to sit down and think about how much they’re borrowing because they are investing in their future,” Hurst says.

According to Hurst, during the 2005-06 academic year, 73 percent of students at St. Michael’s had some form of student loan. The average loan debt for a St. Michael’s graduate including private and federal loans totals to an average $22,264. The average loan debt for federal loans alone totals $18,133.

Hurst also stressed the major differences between private loans and federal student loans.

St. Michael's senior Kristina Swisher tries to sort out her longterm loan payments with her lenders. (Izabela Socha, photo)

“Students should try to keep federal loans instead of private loans because the [private] interest rates are unsubsidized.”

Kennedy said at his recent session in Congress that when interest rates are unsubsidized which is the case for most private loans, the interest rate can go up as high as 19 percent.

Kristina Swisher, a senior at St. Michael’s admits that she does not know nearly enough information about her student loans and also states that the financial aid office could do a little bit more to help the students before they graduate.

“I feel that loan counseling should have been placed early junior year to prevent this shock right now,” Swisher says.