Changes to student loan debt are coming, and they aren’t necessarily good changes. The crisis of student loan debt in our nation is surmounting, causing Congress to turn its attention on correcting the situation before another recession hits. Legislation can be difficult to follow as it goes through a time-consuming process and can constantly change before it is (if it is) enacted into law. You may be primarily focused on studies or getting a job by graduation, but it is imperative that you keep an ear (or both) to the ground and an eye (or both) open to these alterations because they will affect you. Here are just a few key matters of which you should pay particular attention.
- Interest Rates on the Rise: As I cautioned over the summer when legislation to change direct loans passed, interest rates are likely to increase. Direct federal loans switched from (very low) fixed interest rates to variable interest rates that correspond to the market. Those interest rates will increase and students will have higher monthly repayments as the economy recovers. How can you prepare? Try to avoid taking out student loans altogether. Shop around for better rates that are fixed at a low interest rate. Make interest payments to prevent your interest from compounding.
- Increased Information to Students about Their Loans: Proposed legislation like the Student Loan Bill of Rights and the Smarter Borrower Act are a welcomed change. Although entrance and exit counseling are already required by federal law, but often leave students confused or indifferent about the terms of their loan agreements and their debt obligations. These bills attempt to make these sessions more informative such as sending students annual updates on their balances, interest rates and repayment options. Take advantage of this change!
- Changes to Eligibility Requirements for PLUS Loans: In 2011, amendments were made to PLUS Loan requirements to exclude borrowers with a foreclosure, bankruptcy filing, repossession or loan default in the past five years or a borrower who is more than 90 days delinquent in their student loan repayments. This change affects a lot of students since parents and graduate students are the ones most inclined to take out a PLUS loan and are more likely to face these circumstances. Congress is looking into these past changes and are considering whether to keep them, add more restrictions, or remove these restrictions altogether. How can you prepare? Again, try to avoid taking out loans entirely. Clean up your credit score by paying your bills on time – even if this means taking on another job or drastically cutting spending.
These changes are just the tip of the iceberg in 2014, so keep checking back to Barrister on a Budget to keep on track!