Students to face heavier debt burden
Report: Congress cuts $12.7 billion from federal student-loan programs.

NEW YORK ( - Congress cut funding for federal student-loan program on Wednesday, raising the cost of attending college for many future students, according to a published report.

The Senate passed a deficit-reduction package that calls for $12.7 billion to be cut from federal student-loan programs over five years, the Wall Street Journal reported Thursday.

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It is the largest single cut the federal government has made to student aid programs and is expected to increase the debt burden of students and their families as many borrowers of student loans will face higher interest payments, the newspaper said.

According to the Journal, Congress raised interest rates on Stafford loans to a fixed 6.8 percent. Right now, rates on Stafford loans, which are variable and reset each year, are as low as 4.7 percent, the paper said. Stafford loans are popular among students because they don't have to demonstrate need to qualify for one.

The new legislation also raises interest rates on Parent Loans for Undergraduate Students to a fixed 8.5 percent from a variable rate currently set at 6.1 percent, the Journal said. Also known as PLUS loans, these loans are granted to parents rather than students.

The move to fixed rates will cost students and their families thousands of dollars over the life of the loan, the report said, citing estimates from Mark Kantrowitz, a financial aid expert.

If a student consolidated a typical Stafford loan balance of $20,000 at the new rate compared with the current low rate, he would be paying over $2,000 more in interest over a standard 10-year life of the loan. With PLUS, parents would be paying nearly $3,000 more, the Journal said.

The cuts were part of a $40 billion deficit-reduction package the Senate passed that also affects Medicaid and pension insurance, the report said. Many of the changes would take effect July 1, 2006, the Journal reported.


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