Students welcome lower rates on loans

By Harold Gwin

YSU students borrowed more than $53 million in Stafford loans last year.

YOUNGSTOWN — The reduction in interest rates on subsidized federal student college loans is welcome news at Youngstown State University.

The College Cost Reduction Act, which took effect Tuesday, drops the interest on subsidized Stafford loans, which make up a big part of the student’s financial package at YSU.

Nearly 8,000 of YSU’s 13,500 students enrolled in the last academic year borrowed a total of nearly $30.5 million through the subsidized loan program, said Elaine Ruse, director of the university’s Office of Financial Aid and Scholarships.

Subsidized loans are “need-based” loans, Ruse said, explaining that the government agrees to pay the interest on the loan while the student is in college and for six months after the student leaves school.

The interest-reduction package drops the loan rate from 6.8 percent to 6 percent on loans issued beginning Tuesday. The rate will drop to 5.6 percent on July 1, 2009, 4.5 percent on July 1, 2010, and bottom out at 3.4 percent on July 1, 2011.

The interest rates on all previous subsidized loans will remain unchanged.

In addition to reduced interest rates on new loans, the amount students will be allowed to borrow from the federal program has been increased, said U.S. Rep. Charlie Wilson of St. Clairsville, D-6th, calling it the largest college aid expansion in six decades.

“Altogether, this new law will boost college financial aid by more than $20 billion over the next five years,” he said. “It’s the single largest investment in college financial aid since the 1944 GI Bill, and we did it with no new cost to U.S. taxpayers.”

The rate cut will benefit low- and middle-income students and families, Wilson predicted, noting that more than 173,000 students take out the need-based subsidized loans each year.

The typical student borrower has $13,800 in need-based loan debt, he said. Once the reductions are fully phased in, the typical student borrower will save an average of $4,400 in interest costs over the life of their loan, he said.

“The Stafford loan is very important at any institution,” Ruse said, and a lowering of interest rates is always good news.

The amounts that students can borrow through Stafford loans also went up Tuesday, she said, but that additional borrowing would be in the form of unsubsidized loans that would carry a flat 6.8 percent interest rate. Students borrowing under that format would be immediately responsible for interest on the debt.

Some 5,500 YSU students secured more than $22.7 million in unsubsidized Stafford loans in the last school year, she said.

Previously, dependent undergraduate students weren’t allowed to borrow any unsubsidized Stafford funds. Now, they can borrow up to $2,000 per year.

Independent undergraduates could borrow up to $4,000 in unsubsidized funds as freshmen and sophomores and $5,000 as juniors and seniors. Those amounts now increase to $6,000 for freshmen and sophomores and $7,000 for juniors and seniors.

Subsidized loans for both dependent and independent undergraduate students remain limited at $3,500 for freshmen, $4,500 for sophomores and $5,500 for juniors and seniors.

gwin@vindy.com