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Everyone with loans NEEDS to read this!

Discussion in 'Pre-Medical - MD' started by personal jesus, Apr 17, 2004.

  1. personal jesus

    personal jesus Senior Member
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    In case you are not up to date with all the legislation before the Congress there is one bill that could cost med students a huge amount of money. Basically, there is a bill that would make it impossible to consolidate student loans. After med school when we all owe 100-200K+ it will not be possible to refinance.

    Here is a Post article that explains the bill pretty well. Definately worth reading if you are thinking about taking out loans (who is isnt?). :scared:

    http://www.washingtonpost.com/wp-dyn/articles/A19476-2004Apr17.html
     
  2. Sharkfan

    Sharkfan Senior Member
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    Could you please cut and paste the text into a post for those of us who don't want to sogn up? Thanks...
     
  3. idq1i

    Physician 15+ Year Member

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    Shifting Burden On Student Loans


    By Michelle Singletary

    Sunday, April 18, 2004; Page F01


    If you have a student loan, there's a debate in Congress you should be following.

    On the legislative table is a proposal to change the interest rate on consolidated federal student loans from fixed to variable.

    One of the chief forces behind this lobbying effort is Sallie Mae, the nation's leading provider of education loans, which wants legislation that would prevent borrowers from consolidating their loans to a fixed rate, the way they can now.

    On the other side are consumer advocates who say borrowers could pay nearly twice as much interest if the rate on consolidation loans is made variable.

    Interest rates on federally based student loans are generally variable when initiated. But when borrowers consolidate, they are allowed to bundle their various loans into one fixed-rate loan, and one monthly payment, that can be stretched to as long as 30 years.

    Over the past few years, the variable student loan rate, which is determined by the government, has been at record lows. Those who consolidate their loans also benefit from the low rate, which is currently 3.4 percent.

    For obvious reasons, millions of borrowers have been rushing to consolidate.

    But all this consolidation at low rates presents a problem: It could cost the federal government billions of dollars. That's because as interest rates rise, the government has to pay a higher subsidy to the lenders who locked in borrowers at low rates. Essentially, the government guarantees consolidation lenders a certain base interest rate.

    Kate Rube, higher education associate for the Public Interest Research Group, contends that if the interest rate on consolidation loans were made variable, the average borrower with a $20,000 student loan debt would pay an additional $7,807 in interest over a 20-year repayment.

    "Given the astronomical rate at which student borrowing is increasing, we need Congress to come up with ways to make loan repayments more affordable, not more expensive," Rube said.

    Rube believes Sallie Mae is protecting its profit margins, not the interest of the federal treasury.

    But Sallie Mae officials say they are concerned that the potential increase in subsidy payments will mean less funding for new borrowers.

    "The money should be spent on access as opposed to heavy subsidies for graduates who already benefited from the student loan program," said Tom Joyce, vice president for corporate communications of Sallie Mae.

    Just look at the facts, Joyce urged me. He insisted that I read a recent report that he said proves fixed-rate consolidated loans are fiscally irresponsible.

    The report, "The Fiscal and Social Costs of Consolidating Student Loans at Fixed Interest Rates," was financed in part by Sallie Mae and co-authored by Kevin Hassett, a resident scholar and director of economic policy studies at the American Enterprise Institute, and Robert Shapiro, chairman of Sonecon, an economic consulting firm, and a former undersecretary of commerce for economic affairs in the Clinton administration.

    Hassett and Shapiro conclude that federal consolidation of student loans will cost taxpayers at least $14 billion in interest-rate subsidies on existing loans and, if legislative remedies are not enacted soon, an additional $21 billion on consolidation loans made between 2005 and 2011.

    "A variable rate will fix the subsidy problem," Hassett said in an interview.

    But is that the only solution?

    Why isn't Congress looking at the possibility of reducing or even getting rid of the very reason for the growing federal burden -- the lender subsidy?

    Why is the only solution to this subsidy crisis an increased financial burden to borrowers?

    It's not as if the borrowers stop needing help once they leave school. According to a survey released last year by Cambridge Consumer Credit Index, 68 percent of the people polled said their outstanding student loans prevented them from making purchases such as a house or a car.

    "We should start with the premise that the federal student loan program is being operated for the benefit of students to achieve an education," said Rep. George Miller (D-Calif.), the ranking minority member on the House Education and the Workforce Committee. "It is not to be operated for the benefit of the lenders alone. But more and more, the lenders have an entitlement within this program."

    In an interview with Shapiro, I raised the option of eliminating the lender subsidy. He thinks that without the government's help, lenders would pull out of the student lending market because of the difficulty in making loans to people with little credit history.

    I respectfully disagree.

    The student loan industry would make healthy profits even without the subsidies.

    In fact, here's what Sallie Mae says in a filing with the Securities and Exchange Commission: "Student loans are 98 percent guaranteed by the federal government and as such represent high-quality assets with very little credit risk and predictable earnings streams that are relatively easily financed."

    Doesn't that sound as though the interest subsidies are just government gravy to lenders?
     
  4. jlee9531

    jlee9531 J,A,S
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    man...graduate students are the ones that can help evolve the fields we are interested in and studying...to make progress in our society...and they thank us with a variable rate. im jumping up and down right now...i really am...:rolleyes:
     
  5. Neuronix

    Neuronix Total nerd
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    If this passes, we'll be screwed. Not just us, but students for years to come. The lenders behind the student loan programs now have to keep their variable rate loans competitive, or else we can consolidate (and believe me, I get 5 letters a week from other lenders wanting me to consolidate). If the government takes away that option, the lenders can set their rates to whatever they want, and there's nothing we can do about it. It'll become a terrible monopoly and there's no telling how high the rates will go.

    The ripple from this is that more students considering undergrad won't go, for fear of the high interest unsub loans, and then it's going to put more pressure on med students to make more money by going into competitive specialties.

    Evil. I hope this doesn't go anywhere.
     
  6. Cerberus

    Cerberus Heroic Necromancer
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    Absolutely horrible!!!!!!!
     
  7. Heal&Teach

    Heal&Teach cogito ergo sum
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    Darn it... I just federally consolidated my undergrad and graduate loans... Maybe I made Sallie Mae mad? :scared:

    Yeah, this pretty much sucks. I guess that businesses like Sallie Mae was tired of losing business to other loan consolidation programs. Oh well, I hope that it doesn't go through either or we'll all be paying dearly.
     
  8. drlexygoat

    drlexygoat Eat, Drink, and Be Merry
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    Wow... I had NO idea about this proposed law. Ouch.

    I'd like to see how some legislators feel after they've amounted 200k+++ debt in only 4 years and try to pay it back on a measly 35k/yr salary....
     
  9. ad_sharp

    ad_sharp Senior Member
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    I don't think that it's the students that the lawmakers are worried about. I think that I'm going to email my congressmen 'round these parts and tell them not to vote for it, or my wrath shall be unleashed upon them :smuggrin:

    I urge everyone here to find their congressman's and senator's websites and tell them what a crock this is. We should not be punished for trying to do something good with our lives.
     
  10. secretmiss

    secretmiss Senior Member
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    This may be a stupid question but when do you consolidate loans? While you are still in school or once you start paying? Do all your loans have to be consolidated together? Do you have to start monthly payments right away after you consolidate? Like, what happens if you consolidate your undergrad loans before you enter med school. Are you expected to pay the undergrad loans while in med school or do you still have a grace period?
     
  11. traumamonkey

    traumamonkey mid-level resident
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    dear secretmiss,
    you can consolidate after you finish. i am not sure, but i think that usually you put all loans together (because you want to lock in a low rate). i consolidated this summer (REALLY low rates) and started paying the lower monthly payment right away. you get a grace period after graduation, typically six months. you can always defer when in school (so when you go to med school you don't have to pay off your undergrad loans), and most lenders are pretty good about deferment even if you're not in school if you aren't making enough to pay it back. the main thing is that you need to communicate with them (fill out a form, let them know your situation and they usually give you six months off or whatever you ask for).

    hope that helps!

    and i hope that a bunch of SDNers and others get on the horn and let congress know that this is a HORRIBLE idea, basically resulting in a tax increase for those of us (the majority) who don't have the cash to pay for school. evil, evil, evil!!!!! :mad:
     
  12. oldtimer

    oldtimer Not a blind man
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    We can all thank the Republican-controlled Congress for this brilliant idea. :rolleyes: :mad:
     
  13. WyldeWolf1

    WyldeWolf1 Get your own!
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    Sounds more like you can blame the lobbying system that prevails in Washington. For every stupid bill that a lobby is pushing via a Republican congressman, you can easiliy find one on the other side of the aisle. Sometimes, it works in your favor if you're represented by a powerful lobby (eg AMA), but then you have to remember the other 1000 groups that are working to screw you over.
     
  14. Gleevec

    Gleevec Peter, those are Cheerios
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    Ah, so this is how Republicans reconcile their beliefs. Passing the buck, since of course, the lobbies are putting a gun to these people's heads. Please, politicians can make their own decisions, lobbies have an influence, but politicians are still free to vote however they please.

    Somehow Im not surprised about Republican rationalization on this. Apparently when anything goes wrong or is bad, the poor sweet Republicans in Congress are the victims of the big bad lobbies that they cant POSSIBLY oppose based on their own views. :rolleyes:
     
  15. BassDominator

    BassDominator Senior Member
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    I'm writing a letter to my congressman as we speak.... hope others will do the same.
     
  16. ad_sharp

    ad_sharp Senior Member
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    For Pete's sake, can we keep from turning this into a Republican vs Democrat thread. Point is......We're all gonna get screwed if something like this passes. Make sure that your congressperson knows what you think and that you can/will vote for someone else if they support this legislation.
     

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