Congress cut $12.7 billion from federal student loan programs earlier this month, as part of the Deficit Reduction Act. The act includes a plan to slash $39 billion from the federal budget, with one-third of those cuts coming out of federal student loan programs. Students will now pay a fixed 6.8 percent interest rate on their federal loans, a one-and-a-half percent increase.
Johnie Burton, director of financial aid, said 7,000 university students with federal loans will be affected by this legislation.
Louis Hirsch, director of admissions, said he is concerned for students who may not be able to afford the new interest rate.
"It will probably not affect the majority of our students but it will affect people from low-income families," he said. "It's not so much what the bill does but what it does not do. At a time when we should be increasing access to college, it's discouraging that the federal government is working in the opposite direction."
Hirsch said the university's exemplary record regarding the paying back of loans makes the higher interest rates more frustrating.
"It's very ironic from the standpoint of the University of Delaware because we have always had one of the lowest default rates in the country," he said. "It's a very good investment when students pay back their loans. It's counter-productive to cut something at schools like ours where students have such a good record."
Although the DRA raised interest rates and increased the amount of students with federal loans must pay after graduation, there might still be some benefits.
Burton said the legislation may help certain students with special circumstances.
"There's a higher interest rate, but there's also more liberal deferment and cancellation provisions," he said.
The deferment provisions are open to military personnel who are on active duty and national guardsmen called up for service. Under the DRA, they may now defer their loans for up to three years.
The DRA also increases Pell grants, need-based federal grants for students who qualify for them and provides some special allowances for teachers. Burton said one of the benefits is expanded loan forgiveness for teachers. However, the DRA stipulates the expanded loan forgiveness is only available to math, science, and special education teachers who teach in K-12 schools in high-need areas.
Burton said the DRA provides for a quicker distribution of funds.
"For first time first-year student borrowers, we no longer have to delay for 30 days," he said. "And we don't have to split single semester loans anymore. Everybody gets their money quicker."
Under the DRA, students can no longer consolidate or refinance their loans while they are still in school. Burton said he was uncertain as to how greatly this provision would impact student borrowers as there is no way to track how many students actually consolidated or
refinanced their loans while in school. Students may only consolidate or refinance their loans once. Burton said loan limits were increased for freshman and sophomore students under the new legislation.
Mike Reiber, spokesman for the Pennsylvania Higher Education Assistance Agency, said it was a positive change to see the loan limits increase for first and second-year college students, but that some elements of the legislation were discouraging.
"We would have preferred to see the loan limits increase across the board for all four years," he said. "We're disheartened that the federal aid for college students took an exceptionally large chunk of the cut. We would have rather they looked other places."
Reiber said he recommends students first attempt to get outside funding before depending on money from the federal government.
"We always encourage students to look for free money awards - all those things need to be explored before they look to loans," he said.
Kaitlin Hoffman, spokeswoman for Rep. Michael N. Castle, R-Del., said the interest rates were going to be raised anyway and will not be able to go higher with the fixed rate. She said Castle, who voted for the legislation, would like to see less impact on the students than what has been predicted by some critics of the DRA.
Senior Cole Campbell said the interest rates on his loans are frustrating.
"It's hard to keep up with interest rates because it keeps building up - it's too expensive," he said. "You're paying for an extra semester that you're not here for."
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