Financial Aid administrators can remind
borrowers that, effective July 1, 2006, interest rates
on new Federal Stafford and Federal PLUS loans are fixed
at 6.8 percent and 8.5 percent, respectively.
Borrowers
who have Stafford or PLUS loans issued prior to July
1, 2006, should be advised that their interest
rate will continue to be variable. The rate will be
adjusted annually effective July 1, based on prevailing
interest
rates on short-term government securities.
The following
are cost-cutting items that Financial Aid administrators
can recommend that their borrowers
consider:
- Reduced loan fees. Financial Aid administrators
can remind borrowers that, effective July 1, 2007,
a federal
law reduces the maximum origination fee that may be charged Federal
Stafford-loan borrowers to 1.5 percent. Some
lenders may subsidize all or a portion of this origination
fee.
The same law requires
that education-loan guarantors collect a 1-percent
Federal Default Fee on all Federal
Stafford and PLUS loans that they guarantee. In some cases
lenders or guarantors will pay this fee.
- Borrower benefits. Some lenders offer interest-saving
borrower benefits. Typically, these benefits provide
a reduction
in the interest rate for borrowers who permit
their loan payments to be deducted automatically from
their bank
account or consistently make on-time loan payments for several
years.
- Student loan interest deduction. Borrowers may qualify
to deduct up to $2,500 of the education loan
interest that they paid during the tax year, subject
to income limits
and other restrictions. Recent tax law changes
enhance this student-loan interest deduction by eliminating
the
60-month limit on deductible interest previously
in effect and by permitting certain higher-income taxpayers
to qualify
for at least a partial deduction. Borrowers
don’t
have to itemize deductions to claim the student
loan interest deduction; however, they must
file Form
1040 or Form 1040A.
Borrowers who are married must file jointly
to claim the deduction.
- Federal interest subsidy. Students who qualify
for subsidized Stafford loans can receive substantial
savings
in interest. For an undergraduate student who borrows a total of $10,000
over four years of college, the interest subsidy
on a subsidized Stafford loan could produce interest savings of more than
$2,000.
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