5 US Laws That Every College Borrower Should Know
Today, most students rely on loans to fund their education. This strategy can allow students to earn degrees that they otherwise would not be able to afford, but it leaves them open to changes in laws and regulation of their funding. Here are 5 of the laws that students can’t afford to not know about.
1. Bankruptcy issues
The Bankruptcy Abuse Prevention and Consumer Protection Act was made in 2005 to include private student loans as one of the 10 debts that can’t be forgiven. Federal bankruptcy laws now make it very difficult for borrowers to discharge student loans.
How this law affects you:
- Student loan borrowers who fall behind are now subject to garnished wages, income tax seizure, even withholding of professional certifications in addition to the standard damage to credit records and other collection activities. A Supreme Court decision even allows the government to withhold Social Security money to collect on old student loans.
2. Increased Rates
The Deficit Reduction Act of 2005 hit the federal student loan program hard with $12 million in cuts. Higher interest rates for student loans kicked in on July 1, 2006. Interest rates for new loans disbursed on or after July 1, 2006 also grew as a result of earlier legislative action in 2002 and 2006.
How this law affects you:
- First and foremost, you’ll pay more interest for the same amount of money. As a result, you may choose to refinance your loan and stretch out your repayment period. The ensuing fall in attractiveness of federal loans means that you may want to step up your efforts in a search for grants and scholarships, which will help you avoid or reduce your debts considerably.
3. Relief Act
To combat the fallout from the aforementioned Deficit Reduction Act, the US House of Representatives recently voted to reduce interest rates for student borrowers. The College Student Relief Act of 2007 was passed with a massive majority in favor of the bill. This new law will apply to the 5.5 million Stafford loans given to students whose families earn between $26,000 and $68,000 per year. The bill establishes gradual reductions in the interest rate over a five-year period, bringing the rate down from 6.8 percent to 3.4 percent.
How this law affects you:
- With attractive rates for qualifying families, Stafford loans will be harder to come by. If you qualify, you’ll reap the rewards of an average savings of $2,300 in interest payments on a 15-year loan. If you don’t qualify, you’ll still suffer under the interest rate hike of the Deficit Reduction Act.
4. A Federal-State Partnership Program
The Taxpayer Relief Act enacted into law in 1997 created education IRAs. This allows taxpayers to save $500 per year tax-free for the higher education expenses of a named beneficiary under 18 years of age. In 2001, these IRAs were renamed Coverdell. With Education Savings Accounts, the annual tax-free contribution limit was raised to $2,000. The provisions passed in 2001 are set to expire in 2011.
How this law affects you:
- This law allows your family to accumulate tax-free savings which can go into your future education, providing an incentive to save as much as you can. It will help you reduce the total amount of loan you need to take, which will clearly have a reductive effect on your loan debt.
5. New Rules
The Higher Education Reconciliation Act (HERA) and the Emergency Supplemental Appropriations Act changed some of the terms of Federal Consolidation Loans made under the Federal Family Education Loan Program (FFELP). Thanks to these acts, your loan has been subject to some changes. For instance, the Emergency Supplemental Appropriations Act effectively ends the single-holder rule for student loans.
How this law affects you:
- Now, borrowers who have student loans with just one Federal Family Education Loans Program (FFELP) lending company can choose to consolidate those loans with another FFELP lender.