Credit downgrade: Effects on 0Ls? Forum

[tipler4213]

I am aware that the recent budget compromise cut subsidies for student loans; however, what direct effects, if any, will S&P's downgrade have on student loans?

[Aqualibrium]

Hopefully, less of you will be willing to take out six figure debt based on the "versatility" of a law degree and easily misunderstood numbers in glossy guide books.

[23402385985]

The budget already killed subsidized student loans for the class of 2015. At least I got to take out a year's worth as a class of 2014-er.

[tipler4213]

Hopefully, less of you will be willing to take out six figure debt based on the "versatility" of a law degree and easily misunderstood numbers in glossy guide books.

Agreed, but will it affect the interest rates of those who choose to take out these loans?

[thecilent]

The budget already killed subsidized student loans for the class of 2015. At least I got to take out a year's worth as a class of 2014-er.

+1. We lucked out here.

[glitter178]

Will be interesting to see how it affects the upcoming cycle.

[FeelTheHeat]

The budget already killed subsidized student loans for the class of 2015. At least I got to take out a year's worth as a class of 2014-er.

+1. We lucked out here.

What a shitty thing to luck out on

[vanwinkle]

Moved.

[kapital98]

The credit downgrade will have no impact on federally guaranteed student loans. They have a fixed interest rate. The only thing that would change this is the collapse of U.S. gov't.

Private loans are different. The interest rate may marginally increase for these loans. However, it's unlikely. S&P is only one of the 3 major credit rating agencies and the academics and media seem to agree there will be essentially no impact in the short term.

Like others have said: The budget cuts killed subsidized loans. This will directly hurt incoming students. Expect to pay a few thousand dollars more for your due to accruing interest

[FeelTheHeat]

^^^ I saw the numbers in another topic and I think it works out to an extra $2700 for the c/o 2014

[kapital98]

^^^ I saw the numbers in another topic and I think it works out to an extra $2700 for the c/o 2014

That sounds like a reasonable ballpark number. The exact cost will depend on your repayment schedule.

[Br3v]

Do I understand it right, in regards to the recent cuts to sub. Loans, that they are basically the same as unsub. Loans in the sense that the only difference is you are responsible for the interest accrued during school instead of 6 months after graduation?

[kapital98]

Do I understand it right, in regards to the recent cuts to sub. Loans, that they are basically the same as unsub. Loans in the sense that the only difference is you are responsible for the interest accrued during school instead of 6 months after graduation?

Yes.

If anyone can find an official link going over the numbers it would be much appreciated. I'm wondering if the gov't is going to increase the limit for unsubsidized stafford loans to account for the loss of subsidized stafford loans. That's my assumption. If they didn't then it would hit grad students even harder ($2,700 would translate into greater than $5,000.)

[OnceUponAMemo]

Excerpt of an email Fordham sent us about the loan changes:

In the President's 2012-13 budget proposal in March 2011, he recommended the elimination of the interest subsidy of the Subsidized Federal Direct Loans for Graduate and Professional students. The savings would be used to bolster the Pell Grant program. Congress proposed the dissolution of the subsidy for ALL students. Section 502 of the new law eliminates the interest subsidy for graduate students beginning July 1, 2012 (next year). Our understanding is that eligible students will continue to be able to borrow $20,500 annually, but interest will accrue on the entire amount beginning at disbursement. The loss of the interest subsidy to a full time day student who borrows for the first time in 2012-13 and was eligible for $8,500 in the past would be about $2,800 term time and $900 in grace period (total $3,700). The additional interest costs for 4 year evening students would be about $4,800 term time and $1,200 in grace period ($6,000). The Department of Education is projected to save $18 billion over the next 10 years.

In addition, under Section 503 of the new law, students will lose the "origination fee rebate" on Direct and GradPLUS loans disbursed after July 1, 2012. Currently there is a 1% origination fee on direct loans (0.5% assessed at disbursement and 0.5% if the borrower fails to make the first 12 months on time). Borrowers would be charged the full 1% regardless of on time payments. For the GradPLUS, the total is 4% (2.5% on disbursement and 1.5% if the borrower fails to pay the first 12 months on time). Borrowers would be charged the full 4% regardless of on time payments.
The Department of Education is projected to save $3.6 billion over the next 10 years.

There is a possibility that borrowers may lose the 0.25% interest rate reduction for electronic loan payments, but it not clear at this point.

[vanwinkle]

Do I understand it right, in regards to the recent cuts to sub. Loans, that they are basically the same as unsub. Loans in the sense that the only difference is you are responsible for the interest accrued during school instead of 6 months after graduation?

This is correct. The way the law is worded, it strips the government's ability to offer subsidized loans to grads but ups the unsubsidized amount offered to compensate. Basically, after July 1, 2012, they can offer the same amount of loans, but but they'll all be unsubsidized. (Any subsidized loans already received keep working like they're supposed to.)

[kapital98]

Do I understand it right, in regards to the recent cuts to sub. Loans, that they are basically the same as unsub. Loans in the sense that the only difference is you are responsible for the interest accrued during school instead of 6 months after graduation?

This is correct. The way the law is worded, it strips the government's ability to offer subsidized loans to grads but ups the unsubsidized amount offered to compensate. Basically, after July 1, 2012, they can offer the same amount of loans, but but they'll all be unsubsidized. (Any subsidized loans already received keep working like they're supposed to.)

Thanks!

OnceUponAMemo, thank you too!

[schooner]

Excerpt of an email Fordham sent us about the loan changes:

The loss of the interest subsidy to a full time day student who borrows for the first time in 2012-13 and was eligible for $8,500 in the past would be about $2,800 term time and $900 in grace period (total $3,700). The additional interest costs for 4 year evening students would be about $4,800 term time and $1,200 in grace period ($6,000). The Department of Education is projected to save $18 billion over the next 10 years.

This is helpful to see - thank you for posting. Wanted to point out that their email is talking about students who will start law school next year, not current 0Ls.

About the estimated costs for current 0Ls - those calculations went through several revisions. The final estimate came out to about $2300 for students starting this year. See: http://www.top-law-schools.com/forums/v ... 0&t=160386 And please don't take my numbers as gospel. I could be totally wrong, which is why I wrote out my entire reasoning there.

[Tanicius]

IMO the only thing that truly matters for us is the job market - we're already paying out the nose and we're not going to be any less screwed unless the job market improves or at the very least stays where is. If jobs shrink again, or if they get anywhere near to how low they were two years ago...

[schooner]

IMO the only thing that truly matters for us is the job market - we're already paying out the nose and we're not going to be any less screwed unless the job market improves or at the very least stays where is. If jobs shrink again, or if they get anywhere near to how low they were two years ago...

Agreed. You can deal with a few thousands of dollars in additional debt if you have a good paying job. It's not great, but you can still survive.

[kapital98]

IMO the only thing that truly matters for us is the job market - we're already paying out the nose and we're not going to be any less screwed unless the job market improves or at the very least stays where is. If jobs shrink again, or if they get anywhere near to how low they were two years ago...

This is equivalent to saying you don't really care if tuition increases by $2,700. Or, to put it in an even broader sense, you don't care if the gov't taxes you an additional $2,700.

The job market is clearly more important. However, that was free money for those that qualified. Now it's gone. I'm not a fan of paying/losing (same either way you look at it) $2,700.

[turkeysub]

The job market is clearly more important. However, that was free money for those that qualified. Now it's gone. I'm not a fan of paying/losing (same either way you look at it) $2,700.

+1

[vanwinkle]

This is equivalent to saying you don't really care if tuition increases by $2,700. Or, to put it in an even broader sense, you don't care if the gov't taxes you an additional $2,700.

The job market is clearly more important. However, that was free money for those that qualified. Now it's gone. I'm not a fan of paying/losing (same either way you look at it) $2,700.

*sigh*

This is a big part of the problem today. People really seem to think that paying $X and losing $X are the same thing. They're not. (This is related to the problem of people treating any kind of money as "free money").

This is what paying $2700 looks like:

You have $2700.
You choose to pay $2700 for something.
You now have $0 and something worth $2700 to you.

This is what losing $2700 looks like:

You have $2700. You put it somewhere.
Wherever you put that $2700, it's suddenly gone and you can't get it back.
Now you have $0 and don't have anything to show for it.

These are two very different things. In this context, you're having to pay another $2700 if you still choose to do so. You don't have to spend it, if the increase makes an advanced degree too expensive. Unlike "losing" money, you still have a choice, and you haven't put any money in yet to lose. You can walk away break-even.

Describing money that was never yours as money you "lost" sounds like you felt entitled to it. That's what led to the current problem we're in. People felt entitled to money that hadn't been spent yet. A lot of government spending is for good use, but treating it like it's money you already have and are entitled to is a huge mistake.

[TheFutureLawyer]

The budget already killed subsidized student loans for the class of 2015. At least I got to take out a year's worth as a class of 2014-er.

+1. We lucked out here.

What a shitty thing to luck out on

Yeah, but honestly, it's not that big of a deal. Anyone do the calculations on it? The interest on it that accumulates while we're in school is going to add up to what, about a grand? Big picture, I don't see it as a big deal. There are way more important things than this.

oops, didn't read. Apparently it'll be like $2700. Still nothing to go crazy over, I can't imagine it changing anyone's decision to go or not to go to school.

[Br3v]

Do I understand it right, in regards to the recent cuts to sub. Loans, that they are basically the same as unsub. Loans in the sense that the only difference is you are responsible for the interest accrued during school instead of 6 months after graduation?

This is correct. The way the law is worded, it strips the government's ability to offer subsidized loans to grads but ups the unsubsidized amount offered to compensate. Basically, after July 1, 2012, they can offer the same amount of loans, but but they'll all be unsubsidized. (Any subsidized loans already received keep working like they're supposed to.)

Thanks. What about sub loans for ug?

[NYC Law]

Do I understand it right, in regards to the recent cuts to sub. Loans, that they are basically the same as unsub. Loans in the sense that the only difference is you are responsible for the interest accrued during school instead of 6 months after graduation?

This is correct. The way the law is worded, it strips the government's ability to offer subsidized loans to grads but ups the unsubsidized amount offered to compensate. Basically, after July 1, 2012, they can offer the same amount of loans, but but they'll all be unsubsidized. (Any subsidized loans already received keep working like they're supposed to.)

Thanks. What about sub loans for ug?

This only affects graduate student loans, UG remains unchanged.

As for the credit downgrade - could mean higher interest rates, worse of all the economic indicators that point to the possibility of an even shittier job market when you graduate.