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New Student Loan Laws Take Effect

For the millions of parents trying desperately to help their child pay for college—an institution that is becoming increasingly difficult to afford—some hope may be insight. A new law that went into effect last week relegating private lenders to a smaller role in educational loans may make affordable federal loans easier to get, according to a recent article in the Wall Street Journal.

The new student loan legislation, which was signed this spring as an amendment to the health-care overhaul bill, cuts out the private-sector middlemen from offering federal loans as of July 1st, while increasing the federal grant programs.

As a result, borrowers should have a clearer distinction between federal and private loans, especially because many banks previously offered both.

The short term result of this change is more competition among private lenders, which could lead to better terms for borrowers. Wells Fargo demonstrated this when it recently dropped rates on two of its private student loans, including a new loan for parents launched in May.

One long term result may be a much needed break for students. The average debt among college students in 2008 is up to $23,200, nearly $5000 more than students graduating in 2004.

Some key tips to keep in mind if you or your children are planning on applying for students loans in the fall.

Maximize the federal loans first. Federal loans have fixed rates that won’t rise with interest. The fixed rates vary from 4.5% for students with a demonstrated academic need, to 6.8% for those who aren’t need based.

Also, federal loans offer a very flexible repayment plan, which can be important if you or your recent graduate are struggling to find a job that can pay the bills.

There are other kinds of federal student loans that can help save money, when compared with private loans, that you can look into to see if you qualify for.

The other key point to think about is finding the deals on private loans.

Credit unions are increasing their business in the field, with around 150 credit unions joining the Credit Union Student Choice program, a group that helps credit unions offer non-federal student loans with an average rate on existing loans of 6.25% with zero origination fees.

There are also more regulations on the radar for Congress. There is a financial-regulation bill in Congress that calls for the formation of a Consumer Financial Protection Bureau that would have oversight over private student loans and other financial products to give borrowers more protection.

Hopefully these trends continue and allow all the emerging college students to have some freedom and flexibility to merge into careers that they want to, instead of selling their soul to the first job that will pay off their debt and get them out of the house—assuming there are any jobs when they graduate.

Posted in Bankruptcy News and Events, Banks, Student Loans, financial laws, lending | Comments Off

What to Expect from the Latest Financial Reform

The financial reform bill approved by the Senate last month and now being revised before it faces votes in both houses of Congress could lay the groundwork for significant changes in the country’s financial system. Here’s a look at what you, as a consumer, can expect.

• More protection: If passed and signed into law, the bills would introduce an agency devoted solely to consumer protection. As part of the Federal Reserve, the Consumer Financial Protection Bureau would be charged with regulating lenders and protecting consumers from predatory lending.
• Free credit scores: While free credit report access (available at www.annualcreditreport.com) has been a reality for a while, Americans still have to pay to view their credit scores. The new bill would give citizens the right to view one free credit score along with their free reports from each of the bureaus per year.
• Increased protection at the bank: For now, the FDIC insurance limit for bank accounts remains at $250,000 (before the change, they stood at $100,000). This limit is set to expire in 2013, but could be made permanent with the new bill.
• More privacy: Currently, employers are permitted to check a potential employee’s credit report during the hiring process; one provision of the new bill would prohibit such employment-related credit checks unless the job involves matters of national security.
• Fewer mortgage penalties: Some provisions of the bill would limit or eliminate prepayment penalties on mortgages, which can act as a disincentive for a borrower to repay a loan early. Similarly, the bill would prohibit mortgage lender compensation that’s based on loan type, which has been linked to lenders leading customers into more expensive loans than they qualified for.
• Debit card fee limits: One provision seeks to lower debit card fees vendors pay, which could lower prices for consumers but could also backfire by prompting banks to raise fees in other areas to make up for lost revenue.
• Credit card use changes: In addition to offering customers discounts for shopping with a specific type of credit card, retailers would be able to set minimum transaction amounts for credit card use (as long as they’re applied universally).

As of now, of course, none of these provisions is guaranteed to make it into the final draft of the bill, but the changes reflect concerns brought on by the collapse of the housing market and the general problems associated with predatory lending that have reared themselves in recent years.

Additional Resources

Summary: Senate Financial Reform Bill

Summary: House Financial Reform Bill

Posted in Congress, Financial Literacy, financial laws, financial reform, house, senate | Comments Off