Students who receive grants and loans could pay more for financial aid after July 1 due to higher interest rates.
The Deficit Reduction Act, which includes provisions that cut about $12.7 billion from student-aid programs, was signed into law by President George W. Bush Feb. 8 and will take effect July 1.
Supporters of the act call it a first step in bringing government spending under control. Its detractors have said the bill puts the burden of debt reduction on the poor and those least able to afford it.
The act contains the largest cut to student aid ever, said Evita Mendiota, a representative of Congressman Brad Sherman, (D-San Fernando Valley).
The reduction of student aid is a direct cut of federal support to the lenders. These cuts are likely to be offset by higher origination fees, which are fees charged by the loan company to cover their costs of granting and processing the loans, said Lili Vidal, associate director of Financial Aid at CSUN.
“It is not that there is less money available, but with higher origination fees there will ultimately be less money in the student’s pocket,” Vidal said.
The origination fees may go as high as 3 percent of the loan amount, Vidal said.
With college tuition as well as living expenses steadily increasing, the $12.8 billion cut could cause concern for some students.
“The money from loans is so important to students,” said Holta Turner, a graduate student of political science who used to receive loans to fund her college career. “I know many students who have to use their loan money not just to pay for school tuition, but for their living expenses and other necessities as well.”
Carrie Lovina, physical therapy graduate student in her final semester, is receiving loans before the cut takes effect, and had no problem receiving adequate funds to pay for school.
“I got a scholarship for $500, but since I get loans, they actually cut some of the amount from my scholarship,” she said.
According to statistics from the Financial Aid office, 12,728 students received Stafford loans last year, and about 10,000 were taking out federal loans to pay student fees.
Along with a spike in loan fees, the interest rate for parent-plus loans will also increase at a fixed rate of 8.5 percent under this bill, Sherman’s representative Mendiota said.
Parent-plus loans are given to parents and families with good credit histories to pay for the education expenses of undergraduate students who depend on them.
“Parent-plus loans must be repaid immediately so the higher interest rates can be an additional problem to some families,” Vidal said.
Sherman has opposed the deficit reduction legislation and worked to advocate various student scholarships and aid programs to keep making college affordable to students who need it, according to officials in the congressman’s office.
Students also have several options ensure they will have enough funds to pay for their education.
If some students take out their loans on time, they may still be able to qualify for zero percent origination fees with certain programs.
Some loan organizations, such as Ed Fund, will charge no origination fees up until the end of September, Vidal said.
“When students begin to see higher origination fees and smaller checks, it may start causing some questions (about Financial Aid),” Vidal said. “At that point, they should speak to their elected representatives.”
Talin Maghakian can be reached at firstname.lastname@example.org.