Loan Payments to be Redirected

Bush and his administration have proposed to buy billions of loans so students can borrow money for school. Banks have made commitments to the loan program despite the change.

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Forty-three lenders have resigned from the federal loan program, and as a result, President Bush and his administration have proposed to buy billions of loans, so that students can have the opportunity to borrow money for educational purposes, according to the New York Times. In addition, big companies like Bank of America, Wells Fargo, Wachovia, Chase and SunTrust are still in the government loan program with its new commitment, despite the changes in the system.

“There have been few changes in the loan business, and small lenders are getting out of business because they can’t make money out of loans,” Jonathan Choy, director of Financial Aid at Biola, said.

He also added that this slight change would not affect the amount of loans students could borrow, but there will be a few changes in paying back the loans. This year’s freshmen and sophomores will be paying back their loans to the government. However, juniors and seniors who were paying lenders who left the federal loan program will now be paying the government as well as a new lender in business. He mentioned that there might be some issues for students as they try to pay back the government and the new lender. Students could possibly join the account and make monthly payments to one account, but this depends on the lender’s leniency.

“It’s a hassle that juniors and seniors have to face the inconvenience [of paying two accounts because of the decision that lenders have made, but it is not an impossible situation, and in the long run it will teach them responsibility,” freshman Rachel Aspinwall said.

Some of the students at four-year colleges have had problems seeking federal loans, according to the New York Times. The U.S. Secretary of Education Margaret Spellings said that some companies began to limit lending to students at certain universities or types of institutions because they were wary of students’ abilities to borrow.

“Biola has a low de-fault rate – it is under 1 percent. Students here are pretty good in paying back the loans,” said Choy. “Biola students have greater ability to take out loans much easier compared to other institutions … There are about 70-71 percent of students who take out loans at Biola.”

Moreover, Choy mentioned that students should be aware that loan interest rates change each year.

“This year’s interest rate is 6.8 percent, and next year it will be lower, and each year until it hits fifth year, the rate will go lower … it goes in a cycle,” Choy said.

“One change in 2007-2008 in the federal loans program is that freshmen and sophomore levels of federal loans will go up $1,000 per year,” said Choy. “Instead of a fixed schedule, the loan repayment will be based on the income level, so the interest rate will go up, and in the long run one will end up spending more money.”

There are three main loans that Biola offers to students, according to Assistant Director of Financial Aid Kathy Anderson, and the one that she recommends is the Stafford Loan, which is cheaper compared to other loans and is “no credit based.”

“If applying for an alternative student loan, you need to shop for the best interest rate in terms of the loan’s range of fees and benefits,” said Anderson. “Do the homework, calling and looking online, before you apply!”