What has the Bail Out Done For College Students?
Many economists and Wall Street investors have said that the $700 billion bail out package was essential to preventing world markets from dropping into a long term recession, but what does it mean for college student loans?
The bailout should bring down interest rates on private student loans and increase their availability as well. It has been said that the bailout would have no effect on Federal Stafford College Student Loans or consolidation loans.
The $700 billion injection should in fact free up credit for lenders so they can issue college student loans that are more on the private side. The interest rates on these college student loans would have raised by at least 2 percent had Congress not passed the bailout. At this point, they could start coming down as soon as November.
The bailout will not affect federal college student loans because they are guaranteed by the government.
College students will continue to have a more difficult time consolidating their student loan debt into one monthly payment because many lenders have suspended their consolidation services because they were not profitable for most lenders. According to FinAid.org, 85.6 percent of the consolidation student loan industry has left the market since the sub prime mortgage meltdown first made headlines in August 2007.
Consolidation college student loans
Although this is good news for college students who need to borrow more than the government typically wants to lend them ($31,000 for financially dependent college students; $57,500 for financially independent college students for their entire college career), it does not help college students.
One college student loan senior stated she borrowed $27,500 through the KU financial aid assistance department, $8,000 through KU Endowment and a $2,300 federal college student loan through a local private lender. It was also stated she would have liked to consolidate all three college student loans into one, but may not have the opportunity to do so..
It is important to remember it may be difficult at this time, but you still need to try to find a way to consolidate them you can. It could be very annoying having to pay them back individually every month.
Minimizing Your Debt
Although college students will likely find it easier to be approved for a private student loan, students should exhaust any other financial options first.
Private student loans can come with higher interest rates than Federal Stafford College Student Loans, and they are usually unsubsidized, which means debt starts accumulating while the student is still attending college.
The interest rates on private student loans are currently about 11 percent, according to FinAid.org. The bailout could bring them down to about 9 percent, which is still higher than the interest rates on federal college loans.
As with all decisions requiring a large expenditure of resources, careful planning and a judicious gathering of information and options can save potential college students much money. The choices a college student can make in advance, the amount of time a college student has to review options, and make good choices might affect the overall cost of college or debt repayment for the next decade or so.
October 18th, 2008 at 1:32 pm
The bail out is a very serious and sensitive subject right now. I thought it was done strictly for the home mortgage loans. My question would be how will it help the private student loans as well? It is a fine line between the private and federal sector right now. It is very hard for me to distinguish the 2 from being different. Can you help me with that?
October 23rd, 2008 at 2:26 pm
That is a very important question. I think I can simplify it for you. First of all, you are right the bailout is really there to help the mortgage phase of loans. However, what is important to realize is, although it has not changed in the ease of obtaining a loan, the economic times we are in may affect you getting the job you were trained for right out of college.
I am not saying you are wasting you time going to college. What I am saying is you must look at it in a long-term scenario rather than short term. You are going to land that job you have so been training for all these years in college. The competition however may be a bit more competitive due to our economy.
I hope that answers your questions.