Some families are about to get kicked out of the government-subsidized student loan program. The Reagan budget sets income limits on who can qualify for this kind of aid.
The new limits take effect Oct. 1. Until then, low-interest loans can be dispensed to any student, regardless of income. So there's apt to be a last-minute rush to the bank to borrow money.
Some banks and state-guarantee agencies may not accept last-minute loan applications, but it doesn't hurt to ask. If you've already applied for a student loan, and think that your income may be above the cutoff point, don't let your bank drag its heels on the application. You'll want your money in hand before Oct. 1.
The exact income cutoff points for loans have not yet been determined for the nearly 3 million families expected to apply next year. The Department of Education has until Aug. 15 to come up with some rules. But Congress has provided a framework and made it clear that it wants that framework interpreted liberally.
In general, families with adjusted gross incomes under $30,000 will qualify for student loans without restriction.
Families with adjusted gross incomes of $30,000 or more may still get student loans, but will have to submit a statement showing financial need.
"Need analysis" is generally done by the college financial-aid office. It takes the cost of that year's education, subtracts whatever you're getting in student grants or other forms of aid, then subtracts an amount that your family is expected to contribute. The expected family contribution is based entirely on your financial statement.
If that contribution, plus student grants, doesn't cover all your costs, you may borrow the rest of the money (up to a specified ceiling) on a low-cost student loan.
You will have to wait until mid-August to learn how this formula will be applied. It's possible that families will be able to earn quite a bit more than $30,000, have substantial assets and still qualify for the maximum loan, especially if the child goes to an expensive private college.
When calculating financial need, Congress directed that special consideration be given to homeowners (but not renters). Farmers and small-business owners will be favored over people who hold their personal assets in other forms.
Student loans are attractive because they are so cheap -- only 9 percent interest (7 percent, if you got your first student loan before 1981). The government pays the bank the difference between the low 7 or 9 percent and the current market interest rate. The student pays no interest at all while in school.
That's an offer that's hard to refuse, whether you need the money or not. Unknown numbers of families and individual students (especially graduate students) have been using the government's cheap money and leaving their own assets in high-paying savings or other investments. The new income limits should cut down on this abuse.
Inevitably, however, the limits also will cut out some families that feel they deserve of the money.
Some other aspects of the bill:
There's a new, 5 percent fee for taking out a student loan, effective 10 days after the president signs the budget into law. This is in addition to the insurance fee of up to one percent charged in many states.
If your financial statement shows that you're entitled to a student loan of less than $500, you will probably not get it. Families needing $500 to $1,000 can get the full $1,000. If your need is greater than $1,000, you may borrow that exact dollar amount (up to $2,500 a year for undergraduates and $5,000 for graduates).
Additional money may be borrowed through the new parent-loan program (now called auxiliary loans) established by Congress last year. So far, only a few banks make these loans, but more are expected to have them soon. You pay 14 percent interest (up from 9 percent previously), but that rate drops to 12 percent if Treasury bills fall below 14 percent. Parents, graduate students and independent undergraduate students all qualify for auxiliary loans of up to $3,000 a year.
The interest rate on national direct student loans for low-income students rises to 5 percent on Oct. 1, from 4 percent this summer and 3 percent last year.