No more fixed-rate consolidation?

[DireWolf]

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Anyone heard about the new senate bill that wants to revoke the option of consolidating federal student loans at a fixed rate?

I think this is the bill, but I'm not 100% sure:

Higher Education Loan Plan Act of 2003 (Introduced in Senate)[S.1742.IS]

If this is the case, we need to write our senators. Not having the option to consolidate at a fixed rate is absurd.

If the bill I listed above is the correct one, who is this Mr. Campbell anyway?

 

[southerndoc]

Not sure if that's the exact bill, but the AAMC's financial lady told us during our exit interview that legislation was introduced to make it a variable rate loan. She thinks it will pass and that there will be a grace period where people can consolidate before the variable rate goes into effect.

 

[DireWolf]

Not sure if that's the exact bill, but the AAMC's financial lady told us during our exit interview that legislation was introduced to make it a variable rate loan. She thinks it will pass and that there will be a grace period where people can consolidate before the variable rate goes into effect.

What do you mean by this? A grace period where you can still consolidate at a fixed rate?

And would this grace period apply to ALL future graduates or just to the graduating class at the time the bill is passed?

I am confused about the implications of the bill, not to mention angry and scared.

 

[mpp]

I don't think it will apply to all future graduates...that would kind of defeat the purpose. Yes, I think it is likely that soon you will no longer be able to consolidate loans to a fixed rate loan. However, if you have any Direct Loans, you can consolidate all your loans (Direct or otherwise) now...while in school. If you have no Direct Loans and won't be graduating for a while, fixed-rate consolidation may not be in your future, so don't count on it.

 

[DireWolf]

In your honest opinion, what class do you think will be the first one effected if the bill passes?

I graduate in 2006.


crosses his fingers

 

[DireWolf]

Another related question:

Without fixed-rate consolidation, does this negate the standard practice of repaying student loans over a 30-year period, relying on investment earnings to beat loan interest?

Will it now become more financially responsible/beneficial to pay off all student loans ASAP (like within one or two years of residency completion)?

Thanks for your input and advice, mpp.

 

[mpp]

My best guess...I doubt there will be much more than a 6-month to 1-year grace period. Being that the bill will likely pass this congressional session, I doubt you will make the cutoff. Purely conjecture of course...things change. I've tried to read the bills but they are typical legal mumbojumbo to me. And of course the bills in the senate and the house are different (although both change things to have variable rates). I also like the way the bills begin with "To amend the Higher Education Act of 1965 to improve the opportunity for Federal student loan borrowers to consolidate their loans at reasonable interest rates..." even though it's making it worse for students.

 

[mpp]

Another related question:

Without fixed-rate consolidation, does this negate the standard practice of repaying student loans over a 30-year period, relying on investment earnings to beat loan interest?

Will it now become more financially responsible/beneficial to pay off all student loans ASAP (like within one or two years of residency completion)?

Thanks for your input and advice, mpp.

I think that's all up to you and your how you handle risk. If you play your cards right you can still beat that variable interest rate (it is still quite low and has the added benefit of tax-deductible interest...although not on a doctor's salary) but not without investing in investments that carry some risk. Locking in now at less than 3% is quite remarkable because should be able to beat out that with some more conservative, less-risky investments.

I think the benefit of consolidation even with the variable rate will be in terms for repayment including income-based payments and longer terms.

Maybe, if we're lucky, the bill will allow all borrowers (regardless of whether they carry Direct Loans) to consolidate within some specified grace period. We will see.

 

[DireWolf]

One more thing, when is the first possible date that you are allowed to consolidate?

I will be receiving my final loan check from the federal government in December 2005.

But I will not be graduating until May 2006.

So can I consolidate the day after I receive my final check, even though I'll still be in school?


btw, I don't know if I was misreading the bill, but it mentioned something about this new law applying to all student loans granted on or after October 1998. I'm not sure how they can "undo" fixed-rate consolidations that students have already locked in. 😕

 

[Seaglass]

It has to be after graduation.

 

[mpp]

One more thing, when is the first possible date that you are allowed to consolidate?

I will be receiving my final loan check from the federal government in December 2005.

But I will not be graduating until May 2006.

So can I consolidate the day after I receive my final check, even though I'll still be in school?


btw, I don't know if I was misreading the bill, but it mentioned something about this new law applying to all student loans granted on or after October 1998. I'm not sure how they can "undo" fixed-rate consolidations that students have already locked in. 😕

I don't think you can consolidate until you are in your grace period or you enter repayment (unless you have Direct Loans).

I would guess that what the bill is saying is that if you have any loans that you took out prior to 1998, then you can still consolidate those at a fixed rate. It would be any loans taken out since then that would be consolidated with a variable rate.

 

[DireWolf]

Wondering if anyone has heard any news regarding this bill. I haven't been able to find anything.

 

[twester]

I'm embarassed... This bill comes from Colorado's own Benedict Arnold, Senator Ben Nighthorse Campbell. He was elected as a Democrat back when being a Democract was cool, then switched parties. Anyway...

This bill was referred to committee in October of 2003. I doubt anything will happen with it. Campbell is leaving the Senate at the end of the year and this bill has no cosponsors. It will probably just die in committee.

You can find the text of the bill here:

http://thomas.loc.gov/cgi-bin/bdquery/z?d108:s.01742:

Troy

 

[FinancialAidOff]

Student loans can be consolidated as soon as a student has left school, due to graduation or other reasons, including during the grace period.

This bill may continue to move forward as it will 1) save the government money as it has to (we have to) subsidize loans at low fixed rates and 2) lenders prefer a variable market rate which is more consistent with how the fund the loans to begin with.

In general, a variable rate is less attractive today but would have been very attractive 5+ years ago. Many borrowers consolidating then locked in at 8%. So although a variable rate does not look good today, it is not as bad as it appears. Regardless, students still will be assured a cap of 8.25% on their loans, unless the law changes...

Joe