Tuesday, January 09, 2007

Congress loudly frets about student loans, quietly does little about them

The Democratic Party's pledge to ram significant legislation through in its first 100 legislative hours (which appears to translate to about two months, in civilian hours) has an interesting angle for with student loans. "Easing the financial burden of college tuition" is on the party's First 10 Bills of 2007 list. So what kind of easing do they have in mind -- assuming, of course, that they can get a bill through, and avoid a veto from the White House?

One of my first blog posts here was about the urgency of consolidating outstanding loans before a pile of changes hit in July 2006. July is when the federal government adjusts the rates on Stafford loans (the program that covers federal student loans, both subsidized and unsubsidized). This year, for loans in repayment, the rate hiked almost 2 percent, to 7.143 percent. The bigger change is that the government did away with its variable rate, replacing it instead with a permanent, fixed rate of 6.8 percent for all loans dispersed after July 1, 2006. (I consolidated my outstanding loans before the hike hit and locked in a rate somewhere around 4.9 percent ... but needed to take a new loan for my fall semester, at the new rate. Yuck.)

Get ready to temper your expectations for what kind of relief the Democrats are offering, though. Conscious of the difficulty of passing expensive new legislation while the U.S. is still spending like a college frosh with brand-new plastic, the Democrats are cutting the cost of their plan by narrowing its scope. According to several news reports, the College Student Relief Act of 2007 that will be introduced next Wednesday (Jan. 17) will only affect new, subsidized Stafford loans . On those loans, a rate cut from 6.8 percent to 3.4 percent will be phased in over the next five years.

Reporters are still trying to suss out exactly what will be in this bill, but the general tenor of the reporting is that it'll be narrow. So, if you're already out of school and paying (or ducking) your loans, prepare to keep slogging.

Student loan repayments seem to trip up lots of people, and it's no surprise. Confront your average new grad -- with the typical new-grad paltry paycheck and new-grad naivety about personal finance -- with a bill for a scary large debt, and it's unsurprising that many go the ostrich route and ignore the bill. (I can't claim to be an exception. David dragged me out of denial before my grace period expired, so I never had problems with student-loan defaults, but I spent my first few months out of college throwing out my credit-card bills unopened. David paying my loans for me for the first few years they were due is the only thing that kept my credit and payment track record safe. Yay for better organized, more practical spouses!)

But student loans are about the hardest debt to hide from -- they don't go away in bankruptcy, and even if you never get an actual bill (a common problem plaguing transient new grads), you're responsible for knowing about and servicing the debt. This can be tricky; with banks merging and selling off assets all the time, a standard student-loan debt can change hands a half-dozen times in its lifespan. Fortunately, there are a few resources out there to help you track down your debt, such as the National Student Loan Data System. Mapping Your Future has a resource list.