Financial Services Focus: What’s going on with Stafford Loans?

One of the many things we’re often asked to do as PR professionals is to help clients draft news or viewpoints on topics in the news. We figured it’d be a useful public service to the many journalists who are asking right now about the changes in the federal student loan program to give an update, since financial services is one of the many areas in which our staff has expertise. If you’re a journalist or publisher, you are welcome to quote or syndicate the following with attribution to SHIFT, and of course, contact us if you’d like to work with us more broadly.

Here’s what you need to know about the changes in student loans that could happen on July 1, 2013.

1. What’s changing?

Stafford Loans come in two flavors for undergraduate students: subsidized and unsubsidized. For Stafford subsidized loans, interest rates have gradually declined since 2008 to 3.4%. That provision expires on Monday unless Congress renews it over the weekend, which means that Stafford subsidized loans issued to undergraduate students after Monday will be at 6.8%. (no subsidized loans exist for graduate students or parents)

2. What’s the impact on students?

New Stafford subsidized loans in which the Master Promissory Note (loan contract) is signed after Monday will be more expensive, double the interest rate. However, Stafford subsidized loans form a relatively small percentage of most financial aid packages. It will make college more expensive, absolutely, but it isn’t a reason for mass panic. Typically less than half of a student’s undergraduate federal student loans are Stafford subsidized loans.

  • Existing Stafford loans will not be impacted. Don’t panic.
  • Stafford unsubsidized loans will not be impacted. They’re already at 6.8%.
  • Graduate students will not be impacted. They’re at 6.8% too.
  • Parent loans will not be impacted.
  • Private, non-government student loans will not be impacted.

If you want to know the dollar value financial impact to you, Stafford loans are 10 year loans. Google for your favorite interest rate calculator for a 10 year term and look at a 3.4% rate and a 6.8% rate. That’s the overall impact. If a student maxes out their Stafford subsidized loan amounts, here’s what the total change will be:

Total borrowed: Over the course of a 4 year education, a student could borrow a maximum of $23,000 in Stafford subsidized loans. At 3.4%, they would pay $227 a month for 10 years and $4,163 in interest. At 6.8% they would pay $265 a month for 10 years and $8,762 in interest. While it’s a lot of money, it’s not tens or hundreds of thousands of dollars.

3. What should a family do?

If you have questions, contact your school’s financial aid office and/or the US Department of Education.

Christopher S. Penn
Vice President, Marketing Technology
Former financial aid consultant

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