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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: regli who wrote (53078)	2/8/2006 1:32:25 PM
From: shades	Respond to of 110194

Spending Cuts Make College Costlier . By Jilian Mincer A Dow Jones Newswires Column NEW YORK (Dow Jones)--Paying for college is about to get costlier. President Bush will, later today, sign off on more than $12 billion in cuts to the student loan program under the Deficit Reduction Act. Aside from the obvious pain to student finances, the cuts will mean that parents taking on the financial burden of their children's education costs will have to make some adjustments to their financial planning before July 1, when higher fees and interest rates take effect. One possible avenue: Consolidate loans now and lock in a lower interest rate. "It's very clear what will happen in the short term, students will pay higher rates," said Sandy Baum, a senior policy analyst at the College Board and a professor of economics at Skidmore College. The College Board, a non-profit organization whose membership comprises educational institutions, estimates 47% of students use these loans to finance higher education. It said tuition and fees for a four year private college averaged $21,235 for 2005-06. It totaled $5,491 at a four-year public college. The typical student who borrows to finance a bachelor's degree graduates with less than $20,000 in debt, according to the College Board. Under the new legislation, freshmen and sophomores could borrow $3,500 and $4,500 a year, respectively or $1,000 more than the previous limits. However, the aggregate limit on borrowing doesn't increase. Graduate students could borrow up to $12,000 a year. While no longer a variable rate, the new interest rates would be fixed at 6.8% for students. That rate is currently 5.3% and capped at 8.25%. Parents who borrow from unsubsidized loans will see rates rise from the current level of 6.1% to 8.5%. The changes go into effect July 1. "They will pay significantly higher costs," said Barmak Nassirian, of the American Association of Collegiate Registrars and Admissions Officers. He recommended that if you're a student or parent with loans that you consolidate them now and lock in the lower rates before they rise on July 1. The new legislation doesn't allow students to consolidate loans until they're in the repayment stage. That's unfortunate, said Nassirian, because students won't get the same benefits consumers get from refinancing a loan when the interest rates drop. "Hunker down and hope for better legislation down the road," he said. "For parents, they're probably better off borrowing against home equity at this point." That's not an option for everyone. Nor is it a decision that should be taken lightly because many families are counting on the equity in their homes to fund retirement. "Home equity is going to be more attractive than taking out a Plus loan when you factor in the tax deduction, but before you take that step, make sure that your retirement savings is on track," said Greg McBride, senior financial analyst at Bankrate.com Right now, a home equity line of credit on about $30,000 is about 7.5%. "Now more than ever it's important to shop around and ask your school who offers the best deal?" said Scott D. Prince, director of external relations and communications for the Massachusetts Educational Financing Authority. "Check with your home state first," he said. "And make sure you understand the benefits. Look at the APR, not just the rates." Many states, including Massachusetts, offer more competitive loans to residents or students attending schools in that state. In addition to providing loans, MEFA offers a pre-paid tuition plan and a 529 college savings plan. Families have a choice, said Prince. They could save before college or they could borrow and pay interest. Clearly, the former is better than the latter. "College is a long term investment," he said. "You can't do it in four years." -(Jilian Mincer is one of four Getting Personal columnists who write about personal-finance issues ranging from new tax proposals to education-funding strategies to estate planning.) -By Jilian Mincer; Dow Jones Newswires; 201-938-4042; jilian.mincer@dowjones.com (END) Dow Jones Newswires