Breakdown

H.R. 2505 — The simplest bill.

The stated purpose of H.R. 2505 is to amend the Higher Education Act to permit refinancing of student consolidation loans, to increase Pell Grant maximum awards, and for other purposes.

Section 1 — Title — College Loan Assistance Act of 2003.

Section 2 — This section removes the prohibition against refinancing in the Higher Education Act by changing the definition of "eligible borrower." It strikes the provision, and all references to that provision, which states that a person's status as an eligible borrower terminates upon receipt of a consolidation loan. This section also reduces the cap on the interest rate of consolidation loans after July 1, 2006 from 8.25% to 6.8%.

Section 3 — This section increases the Pell Grant maximum to $7000 for 2004-2005 and 2005-2006.

Section 4 — This section eliminates origination fees for Federal Family Education Loans and Federal Direct Loans.

H.R. 2505 does not specifically deal with PLUS loans, and since the consolidation interest rates and PLUS interest rates are separate, I don't know that this bill would apply to PLUS loans. However, it leaves room for PLUS changes later, as it doesn't expressly exclude them. It also helps current students by the grant increase and fee elimination, which refutes some arguments that changing the student loan consolidation rules would hurt current students.
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(Authored by Diana Lamphiere)

Background

In recent months, interest rates on Federal student loans have fallen to all-time low percentages. Students and graduates are constantly reminded of the freefall by the government, media and advertisements from lenders such as Sallie Mae.

However, for those borrowers who have finished school and consolidated their Federal student loans, these much touted lower interest rates offer no relief. Under the Higher Education Act of 1965, a borrower is only eligible for a consolidation loan if he or she has never consolidated before. 20 U.S.C. 1078-3(a)(3). This creates a “one-time consolidation” rule, and bars borrowers from refinancing their consolidation loans, locking those borrowers into the market interest rate at the time of consolidation, regardless of whether rates fall later on. Most borrowers are unaware of this rule at the time they consolidate, and only find out that they can’t refinance when they try to take advantage of lower interest rates.

Fourty-six percent of loans consolidated since July of 1998 are locked in a rate of 6% or higher; that’s 48 billion dollars worth of loans. 11.5% are locked in at a rate of 8.25%, another 12 billion dollars worth of loans, Sandra Block, Posted by Liz at 03:40 PM | Email to a friend | Comments (0)