Latest news with #UniversityofChicagoHarrisSchoolofPublicPolicy
CNBC
3 days ago
- Business
- CNBC
Federal student loans will still be a 'better bet' than private—even with coming changes, experts say
The question of whether college students should take out federal or private student loans to pay for their education may have just gotten harder to answer. That's due to a number of changes in President Donald Trump's so-called "big beautiful bill" that will affect many current and future federal student loan borrowers. The bill undoes several of the reforms President Joe Biden made during his time in office, such as protections for defrauded borrowers. It also eliminates repayment options and benefits like economic hardship deferrals that predate the Biden administration. Historically, federal student loans have generally been a better deal for borrowers, Kate Wood, a lending expert at NerdWallet, tells CNBC Make It. The coming changes won't necessarily make federal loans a "poor choice," she says, but the decision may not be as obvious as it once was. Lesley Turner, an associate professor at the University of Chicago Harris School of Public Policy, agrees. Turner has published several research papers on the role and impact of federal financing in higher education and previously served as an economic adviser within the Department of Education. "By reducing the available protections for federal student loans, all else equal, that does make private student loans more attractive," Turner says. If you're weighing private versus federal student loans to pay for your education, there are generally five major factors to consider. Here's a look at each. If you're enrolled at least part-time at an academic institution that participates in the federal direct loan program, you may be eligible to receive federal student loans. You must submit a Free Application for Federal Student Aid to see if you qualify, but there are no income limits. You must be a U.S. citizen or permanent resident, have a valid Social Security number, not be in default on another federal student loan and have a high school diploma or equivalent credential. Private student loans are subject to lender approval. It can be very difficult to get approved for a loan with poor or no credit history, but you can apply with a cosigner. You may have to meet enrollment, income and other eligibility requirements, depending on the lender. Currently, federal student loan borrowers have several options for repayment plans that best fit their needs. There's a standard repayment plan that keeps monthly payments fixed over the life of the loan and several income-driven repayment plans that are designed to make monthly payments affordable for lower-income borrowers. On the latter plans, borrowers have to certify their income annually, which can raise or lower monthly payments. Trump's policy bill narrows the number of available payment plans for future borrowers. Borrowers currently on the Pay as You Earn, Saving on a Valuable Education and Income-Contingent income-driven repayment plans will have to switch payment plans as the policy eliminates these options. But those borrowers will still have a standard and an income-driven repayment option. Private student loan terms can vary by lender and loan, Wood says. You'll typically have better options with federal loans as private loans typically don't offer income-driven payment plans. Repayment timelines are often shorter for private loans too, ranging from eight to 12 years, compared with up to 25 years for federal loans. All federal student loan interest rates are fixed for the life of the loan and determined by Congress each year. For the upcoming 2025-26 school year, they are 6.39% for undergraduate loans, 7.94% for graduate loans and 8.94% for parent and grad PLUS loans. Borrowers don't need a credit history to qualify and a good or bad credit score won't impact their interest rate. Undergraduate borrowers with demonstrated financial need have access to direct subsidized loans. With these loans, the federal government pays the interest while the borrower is in school and during certain deferment periods. Unsubsidized and subsidized loans have the same fixed interest rates. With private loans, however, your interest rate may be fixed or variable, depending on your loan terms. Lenders assign interest rates depending on the broader rate environment and borrowers' creditworthiness. It's feasible some creditworthy borrowers — or borrowers who have a cosigner with good credit — could get a better interest rate with a private loan. But it's fairly uncommon, Turner says. She cites a 2012 Consumer Financial Protection Borrower study — "the best evidence we have," she says — that found the average student loan borrower was always offered a higher interest rate from private lenders than the federal interest rate. A major advantage of federal student loans has been the economic hardship and unemployment deferments that allow current borrowers to pause their monthly payments for a limited period of time when experiencing certain financial hardships, Wood says. Currently, borrowers can receive economic hardship and unemployment deferments for up to three years and general forbearances for a maximum of 12 months at a time. However, Trump's policy reforms eliminate these options for future borrowers. Anyone who takes out loans after July 1, 2027 will be required to make monthly payments unless their loan servicer approves a general forbearance for situations like financial difficulties, medical expenses or changes in employment. The new policy will limit forbearances to a maximum of nine months in a two-year period. "On one hand, that's a lot worse than it used to be, but that's probably still better than what a lot of private lenders are going to offer you," Wood says. There's no law or regulation requiring private lenders to help you out if you fall on hard times while paying back your loan. Like credit card companies or other lenders, you may be able to negotiate a pause on your payments for a brief period if you have a good relationship with the lender and a history of on-time payments, but "it may come down to what your loan agreement allows," Wood adds. Plus, interest will likely continue accruing if you do successfully pause private loan payments, while interest may be paused for some federal loan forbearance periods. Though federal student loans may offer better terms, you may be limited in the amount you can borrow. Undergraduate dependent borrowers have a lifetime limit of $31,000 and annual limits depending on what year of school you're entering. The annual limits are as follows: Graduate and professional students have an annual loan limit of $20,500 and a lifetime limit of $138,500 including any amounts borrowed in undergrad. Grad students and parents of undergraduate students can also currently borrow up to the cost of attendance after any aid through PLUS loans, which have higher interest rates and slightly different protections than federal direct loans. The new law doesn't change the current loan limits for undergraduate students, but it does impose lower borrowing limits for graduate loans and parents taking out loans on behalf of undergraduate students by eliminating grad PLUS loans and capping parent PLUS loans for undergraduate students at $20,000 per student per year, up to an overall total of $65,000 per student. After July 1, 2026, grad students will be able to borrow up to $20,500 a year and a maximum of $100,000 over the course of their studies — not including undergraduate borrowing — or $50,000 a year and $200,000 in total for professional studies like law or medicine. For private loans, however, "ostensibly, no limits exist," Wood says. The amount a borrower can receive is up to the lender's discretion. "The amount that they're going to be open to lending you is going to depend on your characteristics as a borrower," Wood says. "Is your credit strong? Do you pay your bills on time? Are you likely to pay back this loan? The stronger financially that you are, the more a lender will be open to lending you." Though the list of benefits may be shrinking, both Wood and Turner recommend students and families exhaust their federal student loan options first before turning to private lenders if they need to borrow to pay for school. "For the majority of borrowers, federal loans will be the better product in terms of both interest rates and the protections that continue to exist after the [new Repayment Assistance Plan] goes into effect," Turner says. Not everyone will qualify for federal student loans, but you won't know until you file a FAFSA. The FAFSA determines whether you qualify for federal grants and scholarships that you don't have to pay back, as well as federal loans. "Everybody should still be submitting your FAFSA," Wood says. "You're not committing to anything. You're just finding out what you could get."
CNBC
16-07-2025
- Business
- CNBC
Trump's 'big beautiful bill' caps student loans. Here's what it means for borrowers
President Donald Trump's massive tax and spending package will bring sweeping changes to federal student loans, in part by capping how much money people can borrow from the federal government to pay for college and graduate school. Among other measures, the legislation, which Trump has called the "one big, beautiful bill," sets new limits for students and their families. The following changes go into effect for new borrowers on July 1, 2026: These new limitations "will reshape how students borrow," said Lesley Turner, an associate professor at the University of Chicago Harris School of Public Policy and a research fellow of the National Bureau of Economic Research. "Students are either going to borrow less or make up the difference with private loans, or they will not start or complete a graduate program," Turner said. More from Personal Finance:Trump's 'big beautiful bill' slashes CFPB funding78% say Trump's tariffs will make it harder to deal with debtTax changes under Trump's 'big beautiful bill' — in one chart Aspiring lawyers, doctors and dentists are most likely to be impacted by the new loan limits, Turner said. "It's quite a substantial cut in the loans students have access to." Roughly 9.3% of law students, 27.5% of medical school students and 60% of those in dentistry programs graduated with more debt in 2020 than is allowed under the new loan limits, according to calculations by higher education expert Mark Kantrowitz. In fact, the average cost of medical school already exceeds $200,000. At private institutions, the average cost is closer to $300,000. The new student loan caps "will affect many prospective medical and other health professions students and worsen the nation's persistent doctor shortage," David Skorton, president and CEO of the Association of American Medical Colleges, said in a statement. Other experts say the new loan limits may provide a much-needed check on soaring tuition costs, which have jumped significantly in recent decades — outpacing inflation and other household expenses — leaving some students feeling priced out of higher education. Nearly every year, students and their families borrow more to cover the rising cost of attendance, a trend that has led to a ballooning of total outstanding student debt to more than $1.7 trillion. With new limits on how much people can borrow, high-priced schools might have to lower tuition or increase aid, Turner said. The limits on federal student loans are likely to spur students to find other lenders to bridge the gap. "The new loan limits for Parent PLUS loans and graduate/professional school loans will shift some borrowing from federal loans to private student loans," Kantrowitz said. "This will particularly impact low-income students, who are less likely to qualify for private student loans." Unlike federal loans, private student loan lenders rely on credit scores for the borrower — which could be the student, a parent or even another relative or friend as a cosigner — to determine eligibility and interest rate. "Access is by no means guaranteed," Turner said. As it stands, roughly 90% of student loans come from the federal government, and the remaining 10% are private student loans, according to the College Board. Students often turn to private student loans once they have reached the federal student loan limits and still need additional education financing. Already, private student loan volume is up significantly. Private student loan originations during the 2024-25 academic year jumped 8.63% from a year earlier, according to Enterval Analytics, a student loan data analysis firm. Private loans can also come with fewer safety nets and less flexible repayment options compared to federal loans.
Yahoo
30-04-2025
- Business
- Yahoo
Gina Raimondo considering presidential bid
Former Commerce Secretary Gina Raimondo (D) said she would consider running for president in 2028. She made the comment during remarks at an event focused on tariffs, trade and tech hosted by the University of Chicago Harris School of Public Policy. 'I've dedicated 15 years to public service. And if I think there's a big way for me to serve again, including running, I'll do it,' Raimondo said in conversation with David Axelrod. 'But this is, but I also, if I thought somebody else would be better or better able to win, I'd get behind that person in a minute. Because this is, like, the stakes are high. And this is going to be really hard,' she added. Raimondo served in the Biden administration and as Rhode Island's governor prior to that. She was interviewed as Biden's potential running mate but was ultimately passed over due to a low national profile. However, since concluding her Cabinet role, Raimondo has remained vocal about politics and the state of her party. 'For us to have a chance, it has to be just that right person at that right moment to make it happen,' she told Axelrod. Earlier in their discussion, she urged Democrats to reflect on their values collectively, in hopes of regaining the attention of the American working class voter. 'The Democratic Party has a huge amount of work to do. Introspection, like you said. Where did we go wrong? What are our policies going to be? What is our platform going to be? What will our tactics be?' Raimondo said. 'You know, how will we overcome this impression that we're elitist, we're out of touch, we don't have our sense on the culture?' Fellow party members have been working to address the same questions after their loss in November that gave Republicans the White House in addition to a majority in both chambers of Congress. Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
The Hill
30-04-2025
- Business
- The Hill
Gina Raimondo considering presidential bid
Former Commerce Secretary Gina Raimondo (D) said she would consider running for president in 2028. She made the comment during remarks at an event focused on tariffs, trade and tech hosted by the University of Chicago Harris School of Public Policy. 'I've dedicated 15 years to public service. And if I think there's a big way for me to serve again, including running, I'll do it,' Raimondo said in conversation with David Axelrod. 'But this is, but I also, if I thought somebody else would be better or better able to win, I'd get behind that person in a minute. Because this is, like, the stakes are high. And this is going to be really hard,' she added. Raimondo served in the Biden administration and as Rhode Island's governor prior to that. She was interviewed as Biden's potential running mate but was ultimately passed over due to a low national profile. However, since concluding her Cabinet role, Raimondo has remained vocal about politics and the state of her party. 'For us to have a chance, it has to be just that right person at that right moment to make it happen,' she told Axelrod. Earlier in their discussion, she urged Democrats to reflect on their values collectively, in hopes of regaining the attention of the American working class voter. 'The Democratic Party has a huge amount of work to do. Introspection, like you said. Where did we go wrong? What are our policies going to be? What is our platform going to be? What will our tactics be?' Raimondo said. 'You know, how will we overcome this impression that we're elitist, we're out of touch, we don't have our sense on the culture?' Fellow party members have been working to address the same questions after their loss in November that gave Republicans the White House in addition to a majority in both chambers of Congress.
Voice of America
27-01-2025
- Business
- Voice of America
Trump's sanctions could force Russia's Putin to negotiating table, some experts say
On Jan. 22, Donald Trump — just two days after being inaugurated for his second term as U.S. president — again called on Russian President Vladimir Putin to negotiate an end to the "ridiculous" war with Ukraine, but this time he added a threat. "If we don't make a 'deal,' and soon, I have no other choice but to put high levels of Taxes, Tariffs, and Sanctions on anything being sold by Russia to the United States, and various other participating countries," Trump wrote on his social media platform, Truth Social. The following day, Trump told reporters that Ukrainian President Volodymyr Zelenskyy had told him he's ready to negotiate an end to the war. In an interview with Fox News aired that same day, Trump said Zelenskyy is "no angel" and 'shouldn't have allowed this war to happen.' Does the new U.S. administration have sufficient economic leverage over Russia to force it to make peace, or at least talk about peace? According to Konstantin Sonin, John Dewey distinguished service professor at the University of Chicago Harris School of Public Policy and former vice rector of Moscow's Higher School of Economics, the U.S. has economic leverage, but some of its levers are clearly weaker than others. "Russia's trade with the U.S. is very small — less than $3 billion a year," he told Danila Galperovich of VOA's Russian Service. "Accordingly, even if any opportunity for U.S. companies to trade with Russia is completely closed, the damage to Russia will be small. There is an opportunity to strengthen secondary sanctions — that is, additional pressure, first of all, on China, on India, on other countries, so that they more strictly comply with the primary sanctions. "There is also an opportunity to continue what [former U.S. President Joe] Biden did with sanctions against the Russian shadow tanker fleet," Sonin added, referring to vessels that Russia uses to sell oil and evade Western sanctions. "This requires great international cooperation, but, in principle, it can be done," said Sonin. Economist Vladislav Inozemtsev, a special adviser to the Russian Media Studies Project at MEMRI, a Washington, D.C.-based think tank, and director of the Moscow-based Center for Post-Industrial Studies, also stressed the significance of secondary sanctions on countries that do business with Russia. "Trump can somehow influence other countries so that they do not buy Russian products,' Inozemtsev told VOA. 'For example, let's say he can say that if India buys Russian oil, then the United States will impose 15% duties on all goods from India. This would have the most radical consequences. [I]f… countries trading with Russia are getting serious problems in the United States for all their products, then I think that this will be a very sobering moment. If it is possible to impose a virtually complete trade blockade through U.S. sanctions, then these will be devastating sanctions, of course." Sonin said that, over the longer term, deregulating oil production internationally would reduce world oil prices and thereby hinder Moscow's ability to finance its military operations against Ukraine. "Trump is famous for his good relations with Saudi Arabia, although they are unlikely to be so good that they will reduce oil prices at his request," he said. "But nevertheless, it is possible to work towards lowering oil prices, which even without sanctions will reduce Russian income." Trump spoke with Saudi Crown Prince Mohammed bin Salman in a Jan. 22 telephone call. Still, Sonin said that economic levers, in and of themselves, cannot force Putin to do anything. "I would say that the most direct impact is still the supply of more powerful weapons to Ukraine. I do not know to what extent Trump wants to do this, but he mentioned it, and, in principle, it is possible to supply Ukraine with more powerful weapons in larger quantities." Inozemtsev, however, said that Putin, who has not previously changed his behavior in response to ultimatums, could do so this time. "Trump is a person whose degree of radicalism and unpredictability corresponds to Putin's," he said. "Here, perhaps, it would be better for Putin to change his mind a bit. If Trump offers him: 'Vladimir, let's go, we'll meet there, sit down at the negotiating table, bring your team, I'll bring mine, and we'll agree on something, we'll discuss it for a day or two, but the issue needs to be resolved,' I think Putin will go."
