Student Loan Save Too Late?

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Student Loan Save

Source: Bard Campus

Did you honestly believe a solution amongst our politicians would arrive before a deadline expired on student loan interest rates? Those who are negotiating the agreement are nearly certain that a “happy medium” can be reached, but they insist it won’t be until after the July 4th break in Congress. And that means there’s no student loan save solutions. And who says bipartisan efforts don’t exist? Remember, these rate increases have the potential for long term problems for students. Many, especially if they’re unable to find jobs in their specialties, will find themselves with troubled credit scores, credit card debt and worse.

Compromises and Misunderstandings

The compromise, say those in that rare and quizzical group of political minds, has been reached, but because those extended vacations are so important to the nation’s leaders, the details will just have to wait until after the fireworks of the 4th of July. They say it will be released “later in July”. You may recall, it’s that pesky impending doubling of college loan rates that has folks divided. The compromise is great news, but no one knows what it amounts to other than a promise to retro activate it.

“We’ll have something completed, finalized, finished before we leave tomorrow,” said Sen. Joe Manchin, D-W.Va., a conservative Democrat who announced a bipartisan deal with four additional senators late Wednesday.

I think that it will be resolved after the break and be retroactive.

Student Loan Save or Red Flags?

It’s all disturbing – or at least frustrating, but the fact is, in just a single generation, America has fallen from 2nd place to 11th place in terms of those who will eventually complete college. It used to not be that way and it’s certainly unfortunate, but to hear both sides of Congress explain it, there’s nothing to worry about. They insist that the 3.4% interest rate stands and that it shouldn’t double to 6.8% less than a week from now – but therein lies the problem: that one word, “shouldn’t”. They didn’t say it “wouldn’t” double, but merely, it “shouldn’t”. And if it does anyway, 7 million college students will likely find it difficult to qualify for student loans for college this year.

It’s all hush-hush too as aides have been warned to not say a word. This is sending up red flags for a few, mostly because Congress can’t help but revel in its victories and abilities to actually compromise. There’s one thing for sure: while Congress can retroactively fix the interest rates, the wise consumer will wait until the wax on the seal has set before signing promissory notes for their new loans, which traditionally start in late July. Congress also approved a retroactive loan fix last summer to extend the current 3.4% rate. That, as you may recall, was something the politicians said they’d never allow to happen again.

The question is: how surprised would you be to hear that another group of politicians, specifically the Dems, say nothing’s been decided? Not very surprised, right? Republicans say purple and Democrats yell green. So much for bipartisan efforts. Senate Majority Leader Harry Reid, D-Nev., and several more top Democrats (including Senate Health Education Labor and Pensions Committee Chairman Tom Harkin, D-Iowa), all let out a collective, “hold your horses” as a warning. “There is no deal on student loans that can pass the Senate,” Reid said.

Interest Rate Caps

Turns out, Democrats want a rate cap of some kind that will protect students from having to face interest rates on individual loans higher than 8.25%. This latest deal that so many say is final doesn’t address that at all. There is no built in “cap”. Meanwhile, Reid and his cohorts insist they will not support a bill without those inclusions. “Any proposal that lacks a cap is a nonstarter,” said Allison Preiss, a Harkin spokeswoman.

Several GOP Senators, Richard Burr of North Carolina being the most vocal, along with Tom Coburn of Oklahoma, Lamar Alexander of Tennessee, as well as Senator Angus King, I-Maine, released a limited number of details of the “Bipartisan Student Loan Certainty Act” on Wednesday evening – which likely didn’t bode well for those who wanted to keep it under wraps until the perfect moment presented itself. It includes all new student loans compliance guidelines, including grandfathering those already with student loans. This would better protect them for those unthinkable emergencies.

Bipartisan?

Both sides are calling it a bipartisan solution. Only problem is, they’re talking about two different bills, which, of course, is the epitome of a partisan standoff. Is it possible, then, that like the high school junior who’s eager to go out on a Friday night, will tell a tiny white lie in order to get out of the house? The

No, Mom… I don’t have any homework this weekend

.. all the while promising himself he’ll make sure he covers that English assignment Sunday night? Both sides may have made strides, but they could have all come together to let the public know “limited details” that don’t exist? All the while, promising themselves they’ll wrap it up before their constituents are on to them?

Those limited details include logistics that the bill would tie all newly issued loans to the U.S. Treasury 10 year borrowing rate and create a three tier system to charge an additional 1.85% for undergraduate Stafford loans, 3.4% for graduate Stafford loans, and 4.4% for PLUS loans, which will also allow parents to carry for their young adults. In the meantime, the interest rate would be fixed over the life of the loan.

Already, Senate Minority Leader Mitch McConnell, R, KY, has signed off on the proposal. That’s according to spokesman Don Stewart and those in the know insist it’s a signal of broad GOP support. The dems are taking credit, but so are Republicans. They have trumpeted the proposal as a rare bipartisan accord because it mirrors a policy supported by President Obama in his budget to tie loan rates to the market vs. allowing Congress to determine the rate.

What are your thoughts? Are you convinced the crisis has been averted or is this just another ploy of “them against us”?

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.


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