SOURCE: NextStudent

August 27, 2007 09:15 ET

Proposed Cuts Could Lead Lenders to Eliminate Money-Saving Discounts on Federal Student Loans

PHOENIX, AZ--(Marketwire - August 27, 2007) - Last month, the Senate passed a version of the College Cost Reduction Act of 2007 (H.R. 2669), which would cut $19 billion in government subsidies for student loans.

If Congress passes a final bill in the next few weeks as expected, borrowers of federal education loans may pay the price, says NextStudent, a leading Phoenix-based education funding company. If their loans are funded on or after October 1, 2007, students and parents may no longer be able to take advantage of significant money-saving discounts currently offered by student loan providers like NextStudent on Stafford Loans, PLUS Loans, Grad PLUS Loans and Consolidation Loans.

NextStudent borrowers stand to lose rate reduction benefits that can add up to a 2.25% interest rate discount -- a discount that can result in thousands of dollars in savings over the life of a federal student loan.

NextStudent currently offers its federal education loan borrowers:

--  An immediate 0.25% rate reduction just for signing up to have loan
    payments automatically deducted from a savings or checking account
--  A 1% rate reduction after 36 on-time payments -- and NextStudent locks
    in this rate reduction for the life of the loan, even if a borrower misses
    a payment later on
--  OR a 2% rate reduction after 48 consecutive on-time payments

The pending legislation will not affect NextStudent's current borrowers. However, with the cuts contained in the College Cost Reduction Act, NextStudent may no longer be able to offer these interest rate reduction benefits on loans that are funded after a final bill is passed and takes effect. With the bill expected to take effect on October 1, it is highly unlikely that borrowers who apply for a federal education loan after August 31, 2007, will have their loans funded in time to take advantage of the current NextStudent discount benefits.

The cuts proposed by the bill could also lead to a reduction in the number of lenders willing to offer federal student loans at all -- student loan borrowers would have fewer lenders to choose from, and the reduced competition could mean even fewer discounts and higher costs for borrowers.

NextStudent encourages students and their parents who don't want to see their federal education loan incentives and benefits disappear to contact their Congressional Representatives and Senators and urge them to oppose the student loan program cuts contained in the College Cost Reduction Act.

* NextStudent will discontinue the interest rate discount benefit plan described above if Congress enacts the College Cost Reduction Act of 2007 or similar legislation. Provisions within that legislation would change the fee structure and yields for lenders that make federal education loans. It is not known at the time of this printing on which date the new provisions will take effect, nor whether they would be applied to federal education loan applications that had been submitted prior to that date but not yet funded. However, it appears likely that the legislation will affect loans funded on or after October 1, 2007. NextStudent will not offer the interest rate discount benefits described above for those federal education loan applications that are subject to the new provisions. NextStudent will make its best efforts to expeditiously process all federal education loan applications it receives prior to August 31, 2007, but cannot guarantee that any particular application will be processed in time for the interest rate discount benefits to apply.

About NextStudent

NextStudent, Federal Lender Code 834051, is dedicated to helping students and their families find affordable ways to pay for college. NextStudent offers one-on-one education finance counseling and has a portfolio of highly competitive education finance products and services, including a free online scholarship search engine, federally guaranteed parent and student loans, private student loans, both federal and private student loan consolidation programs, and college savings plans.

For more information about NextStudent and its student loan programs, please visit the company's website at

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