Taking Care of Business
As you probably heard in the news, Congress did not act before its recess late last month, and so the rate on new subsidized Stafford loans doubled to 6.8% from 3.4% on July 1. Subsidized Stafford loans are federal loans based on financial need. Unsubsidized federal loans are available to all students regardless of need; rates on those loans are already at 6.8%.
The Senate is scheduled to vote July 10 on a bill to keep the 3.4% rate for an additional year, retroactive to July 1. Regardless of the outcome of this vote, there is growing recognition that student loan subsidies are not fiscally viable in the long term. According to the Consumer Financial Protection Bureau, federal student loans represent 85% of outstanding student loans, compared to 15% for private loans.
Student debt recently passed the trillion dollar level in the United States. It continues to grow as tuition costs rise, and is a major burden on graduates.
So if you are planning for college, it is more important than ever to form a realistic idea of the costs involved. The College Cost Calculator from Morningstar Investment Research Center allows you to quickly define target goals, including the percentage of college costs covered by savings and investment.