Published: August 28, 2008

While college students relaxed and enjoyed their summer break, legislators worked to make significant changes in the student loan system. The combination of a revised Higher Education Act and student loan interest rate cuts made this a landmark summer for those who borrow money in order to finance their education. Although students and legislators alike anticipate that modifications included in the new law will aid in the battle against the soaring cost of higher education, a decline in the availability of private lenders may counteract the advancements.

The College Cost Reduction and Access Act was signed into law in September of last year, but the provision that lowers student loan interest rates just went into effect on July 1. According to the Web site of the U.S. House of Representatives Committee on Education and Labor, interest rates on student loans were cut to six percent from 6.8 percent, which will save a student an estimated average of $2,570 over the life of their loan.

Over the next four years, the Act calls for interest rates to be halved. The Act also ensures that no student will ever have to designate more than 15 percent of his or her discretionary income after college to repaying student loans, and after 25 years, all loans will be forgiven.

The Act also increases the maximum Pell Grant scholarship, a federal need-based grant given annually, gradually over the next five years, eventually totaling $5,400. The revised Higher Education Act makes these Pell grants available to students year-round, instead of just during the academic year, as they were previously offered.

The changes in the Higher Education Act, which was passed by Congress on July 31, are also geared towards easing the financial burden on college students. According to an August New York Times article, colleges and universities will now be held to a higher degree of transparency regarding increases in tuition and the high cost of textbooks. This aspect of the bill intends to protect students from unwarranted hikes in university costs.

In order to ease the process of applying for aid and help eliminate errors, the Act calls for a two-page Free Application for Federal Student Aid (FAFSA) EZ-Form. The Times stated that many students who deserve aid end up not receiving any because of mistakes made in the current FAFSA form, which is complicated.

In accordance with these overhauls in the student loan sector, New York State Governor David A. Patterson responded to criticism of his state’s higher education system by calling for a plan to create a low-cost student loan program. According to the Web site for the New York State Committee on Higher Education, New York is the only state of its size that does not presently offer such a program. The Committee is calling for the “establishment of a state low-interest subsidized loan program,” which students will not have to pay taxes on.

Patterson stated that the proposed changes would not only help students in his state, but also would make New York more competitive among other states. Considering the high degree of competition for students among universities both nationally and globally, Patterson stated that he felt the implementation of his proposed changes was both necessary and timely.

Despite these positive changes concerning student loans, a shrinking pool of private lenders threatens to negate the positive impact of the new legislation. According to a recent article in The Wall Street Journal, numerous banks, including Bank of America and Wachovia, have either decreased their lending capacity or have stopped providing loans altogether.

Private lenders who still are providing loans have adopted much stricter criteria for eligibility, therefore denying loans to students who would have once qualified for aid. The Wall Street Journal estimates that the number of students who will no longer qualify for loans could total 200,000.

John Buckley, associate vice president for undergraduate enrollment, said that Fordham has payment plan options for students who are affected by the lack of available loans. Buckley stated that students are able to spread their tuition payment over a period of 10 months to ease their financial burden. He also cited various scholarships that Fordham offers, both merit and need-based, that could alleviate some cost to students. “In Financial Aid, we do our best to allocate need in a way that provides help to many,” he said.

Despite legal revisions and the university’s attempt to help, some Fordham students are still unhappy with their financial situation. Gabriel Agostini, FCRH ’12, said he received some help, but the lack of state aid left him unsatisfied. “The new student loans didn’t really help much because most that I received were unsubsidized, which doesn’t really help in the end,” he lamented.

Students who receive subsidized loans are not charged interest on the loan until they begin repayment, while unsubsidized loans build interest from the moment they are granted.

Sean McChesney, FCRH ’12, experienced a similar situation.  McChesney stated that he took out a Stafford Loan, which is federally granted and may be subsidized or unsubsidized based on need. According to the Stafford Loan Web site, each student may choose to borrow an unsubsidized two thousand dollars on top of the original loan they are granted. “I chose not to borrow the additional two thousand that I could have, basically because I do not want to graduate with more debt than I need to and already am [graduating with],” McChesney commented.

Tamanna Rubya, FCLC ’12, felt that the burden of repaying student loans outweighed the benefits of instant cash. She said: “I didn’t take out any loans because I felt it would be easier to pay my tuition fee for the semester in full without having to worry about monthly or later payments to loan companies.”