Student loans garnered a lot of attention in 2013. Interest rates on federal student loans became a political playing card – again – and debt loads and borrower default rates captured headlines.
The new year could be just as tumultuous for college borrowers. The pending reauthorization of the Higher Education Act could usher in myriad changes to federal student loan programs and interest rates for 2014-2015 loans likely won't remain the same.
[Learn how to map out college savings for 2014.]
Below are three potential student loan changes borrowers should keep an eye on in 2014.
1. PLUS loans: Unlike Stafford loans, approval of Parent Direct PLUS and graduate PLUS loans are subject to credit history. Borrowers with a foreclosure, bankruptcy filing, repossession or loan default within five years cannot receive a PLUS loan. Neither can those with an account that is more than 90 days delinquent.
In 2011, the Department of Education added additional criteria – no loans charged off or sent to collections. The adjustments meant thousands of PLUS loan borrowers were denied, despite being approved the prior year, Rachel Fishman, a policy analyst for the New America Foundation, notes in a January 2014 report.
"It left students scrambling in the middle of their academic careers, trying to find the funds to remain in school," Fishman said during a Jan. 8 panel on PLUS loans held at the Washington, D.C., foundation. "That never should have happened."
But the department may not have the authority to make changes to the regulations governing PLUS loans, says financial aid expert Mark Kantrowitz, publisher of Edvisors.com.
Congress is set to take the issue up next month and the result could go several ways, Kantrowitz says.
"From one point of view, they are looking at potentially making those two changes official," he says. "They could block those two changes. They could make other changes in eligibility."
Those other changes could include using debt-to-income ratios and FICO credit scores to determine eligibility for federal PLUS loans. These adjustments would help reduce default rates, Kantrowitz says, but could also shut out a larger portion of students and parents.
2. Interest rates: Congress battled over student loan interest rates in 2013, finally agreeing on market-based rates in late July. While the agreement lowered interest rates from borrowers at the onset, the respite was only temporary.
"Rates are going to go up," says Kantrowitz. "That's a given."
It is a given because interest rates on federal direct loans are now tied to the 10-year Treasury note. As the value of that note increases, so do the rates on Stafford loans, Parent Direct PLUS loans and graduate PLUS loans.
[Find out how the student loan interest rate bill affects grad students.]
The exact rate charged to 2014-2015 borrowers won't be determined until June 1, but will then be locked in based on the Treasury note yield. On June 1, 2013, the yield was 2.16 percent. On Jan. 2, 2014, the yield was 3 percent.
While most experts anticipate the Treasury yield will rise over last year's, it's difficult to anticipate by how much.
Some experts predict the Treasury rate will rise as high as 3.75 percent, while others have a more conservative forecast of 2.96 percent. Either way, students taking out federal loans for the upcoming school year should expect to pay more.
3. Student loan counseling: Entrance and exit counseling is already mandatory for federal student loan borrowers, but the process leaves a lot to be desired, students and experts say.
"It simply involved checking off boxes saying that I agree to certain terms," Simon Tam, an MBA student at Marylhurst University in Oregon, told U.S. News in July. "There is no opportunity to interact at all."
The Smarter Borrowing Act, a bill introduced by Sen. Tom Harkin, D-Iowa, could make the counseling more comprehensive by requiring colleges and universities to send students annual updates on their balance, interest rates and repayment options.
[Discover 10 ways to borrow less for college.]
The bill would also require colleges with higher than average default rates to ramp up their counseling to include financial literacy and budgeting.
"This is a very solid piece of legislation," says Kantrowitz, who notes that the bill has enough bipartisan support to be included in reauthorization of the Higher Education Act, which expires at the end of 2014.
Whether Congress can come together to pass a new iteration of the Higher Education Act this year is still a big question mark, he says.
"The last reauthorization was originally supposed to occur in 2002," Kantrowitz says. "They passed 13 extension bills until it was finally passed in 2008, and this Congress is at least as contentious."
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Average tuition and fees for in-state student: $9,022 in 2011-12 Increased: 20.5% from a year prior and 98.3% from five years prior The worst could be yet to come for students in California's public universities. If California residents vote against state tax increases in the November elections, the school system will have to come up with money fast to fill the $375 million budget gap that would ensue, says Dianne Klein, a spokeswoman for the University of California's Office of the President, which is the headquarters for the 10 UC campuses. Under that scenario, tuition could rise 20.3% for the second semester of the upcoming academic year. Much of California's growing college-cost burden has been placed on out-of-state students. The 10 most expensive campuses for out-of-state students in the U.S. are all in California, where tuition, fees, room and board in total ran up to roughly $51,000 last year, according to the Chronicle for Higher Education. Klein says that despite the rising costs, overall applications to the UC system are going up; she also says that because of the system's financial aid programs, about half of all UC undergrads pay no tuition.
Average tuition and fees for in-state student: $9,428 in 2011-12 Increased: 16.8% from a year prior and 101.7% from five years prior Since 2008, Arizona's public universities have laid off faculty and staff and eliminated academic programs in order to make ends meet. This year, state funding will total $708 million, compared with nearly $1.1 billion for the 2007-08 academic year, says Katie Paquet, spokeswoman for the Arizona Board of Regents. As tuition costs have risen, the largest universities in the state have rolled out lower-cost ways that students can attain a Bachelor's degree. This fall, Arizona State University will open a new campus in Lake Havasu City, where annual tuition for state residents will cost $6,000, nearly 40% less than at its campus in Tempe. Also, Arizona's largest universities -- ASU, University of Arizona and Northern Arizona University -- are offering students who transfer from community colleges a lower-cost way to complete their Bachelor's degree; in some cases, students will be charged the cost of tuition during their freshman year in community college rather than the tuition the four-year school charges when they enter it. "Our goal is to provide more options to students across the state at varying price points," says Paquet. Separately, for the first time in two decades, Arizona State University and the University of Arizona have frozen tuition for in-state undergraduate students for the upcoming academic year. Tuition for out-of-state students will rise by roughly 3%.
Average tuition and fees for in-state student: $6,808 in 2011-12 Increased: 15.9% from a year prior and 74.2% from five years prior Beyond tuition hikes, Georgia college students are also facing cutbacks to a popular state scholarship program. Last year, the state reduced the amount of money it doled out to students through its merit-based Hope Scholarship, amid concerns that the program was underfunded. The program, which used to cover 100% of tuition costs at the state's public colleges for qualifying students, covered roughly 87% last year; this year, as tuition continues to rise, the scholarship will cover 81% to 85% of costs in the university system. The state is also looking at cutting direct funding to higher education. Georgia Governor Nathan Deal recently proposed a $54 million cut through June 2014, which if enacted would reduce spending over that period to roughly $1.7 billion. A decision is expected early next year. John Millsaps, spokesman for the University System of Georgia, says public institutions have had to shift much of the cost burden onto students as state funding dwindles. Over the past seven years, state funding went from covering 75% of the cost of educating students to 50%, he says.
Average tuition and fees for in-state student: $9,484 in 2011-12 Increased: 15.7% from a year prior and 67.3% from five years prior Unlike most states, Washington doesn't have an individual income tax; instead, it relies on sales taxes for much of its revenue. Income from that source slumped during the recession, leaving the state with less money to go around. To make up for the shortfall, the state granted permissions to its public universities to raise tuition, and students have felt the impact: Six years ago, it cost roughly $5,700 on average for an in-state student to attend a public college in Washington. That's hovering around $10,000 this year. In June, the University of Washington announced a 16% increase in tuition and fees for the upcoming year, following a 20% increase last year. The state is covering just 30% of the cost of educating its students, the lowest share ever, says Norm Arkans, a spokesman for the University of Washington. He says the institution's relatively low tuition and fees provided some leeway to raise costs, but adds that the strategy isn't sustainable in the long term.
Average tuition and fees for in-state student: $6,044 in 2011-12 Increased: 13.7% from a year prior and 65.8% from five years prior Few students have been immune to tuition spikes in Nevada. During the five academic years ending this past spring, Nevada raised tuition and fees at its community colleges by 48% on average, one of the highest increases in the country, according to the College Board. Costs at four-year public colleges rose 66% over the same period. And midway through the last academic year, the state approved an 8% tuition increase for all undergrads, which will kick in this fall. Still, despite the increases, the cost to attend a public college in Nevada remains lower than the national average, says Dan Klaich, chancellor of the Nevada System of Higher Education.