Student loan legislation appears to be a short-term fix, cautions Quinnipiac financial aid expert

Yoia,DominicDominic Yoia, associate vice president and university director of financial aid at Quinnipiac University, is available to discuss the legislation that would link interest rates to the financial markets.

“There appears to be bipartisan political momentum on lowering interest rates for both student and parent loans, which has the appearance of being fair, equitable and the right thing to do,” Yoia said. “However, as with any law, you have to read the fine print.”

Under the proposed legislation, interest rates will be structured around the 10-year Treasury note, which continues to hover at all-time lows, Yoia said.

“While tagging a fixed percentage on top of these rates will allow students and parents to borrow at low rates this year, as treasury rates go up, so do interest rates,” Yoia said. “Interest rate caps are proposed at 8.25 percent for undergraduate student loans, 9.5 percent for graduate student loans and 10.5 percent for parent loans, a far cry from the 6.8 percent (undergrad and graduate students) and 7.9 percent (parents) interest rates in effect for these contingencies at the moment.”

Yoia said the proposed legislation also fails to address the fee structure associated with borrowing educational loans.  To date, student loan fees are 1.051% and parent loan fees are 4.204% which are deducted from the proceeds of the loan.

“These fees were quite a bit lower prior to last year’s election (.5 percent and 2.5 percent, respectively) but this other costly issue has gone relatively unnoticed,” Yoia said. “All things being considered, the compromise being reached is a good thing for both students and parents in the short run as interest rates will be much lower than they are today.  However, no one, including Congress, believes these rates will continue to favor students and parents over the long run.  It is just a matter of time before we revisit this issue once again once rates begin to climb.”

To reach Yoia, please call John Morgan, associate vice president for public relations, at 203-206-4449.

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