Students and parents can save thousands of dollars by locking in the currently low interest rates on student loans over the next several weeks before rates will climb by 1.84 percent on July 1.
Consolidating loans now is the best way to secure a low rate and save big on monthly payments in the future.
The 10 million college students with loans from the federal government will face 7.14 percent interest rates for paying back their loans next year, up from 5.3 percent now.
Erin Korsvall, a spokeswoman for Sallie Mae, the nation’s largest consolidator and student loan provider, said interest rates fluctuate yearly but now is a good time to consolidate because 5.3 is the fourth-lowest interest rate in the 40-year history of the program, she said. Consolidating will lock in this rate until loans are fully repaid, Korsvall said.
Estimating the future market trends is impossible, but given the current rate is the fourth-lowest ever and the steady increase over the past year, Korsvall said, it’s best to consolidate now.
“The key is to be mindful of the deadline because, again, it’s approaching fast and there’s no reason to wait until the last minute,” Korsvall said.
Every borrower’s situation is different, depending on how much he or she has in outstanding loans, Korsvall said, but students could save up to $5,000 if they consolidate before July 1, based on a $20,000 loan balance.
According to 2006-07 estimates, students at the University can expect to pay $5,787 in tuition and fees per term next year for 14 credit hours, according to the University’s Office of the Registrar. For students paying out-of-state tuition, the same credit hours will cost an extra $13,000 per term.
The interest rates are determined by three-month Treasury bill auctions, which are reset every year at the end of May. This auction reflects general market rates. A federally mandated interest rate margin is added for student loans. The Treasury bill rate, not the student loan interest rate, is the source of the increase.
Rates for Federal Stafford loans, one of the two most popular financial aid options, have fluctuated between 3.3 percent and 8.1 percent since 1998, according to statistics provided by Sallie Mae. The last three years have been low, in the mid 3 percent range to the low 4 percent range. In the four years prior, from 1998 to 2002, rates averaged 7.14 percent.
Korsvall emphasized the importance of applying for consolidation in advance and with an eligible lender. Students often wait until the last minute to consolidate their loans and can be rejected because federal regulations delegitimize certain lenders.
The Sallie Mae Web site, www.salliemae.com, has resources for consolidating and finding eligible lenders to do it. Students don’t need to borrow from Sallie Mae to take advantage of the online or telephone services available, Korsvall said.
“Time is money, and waiting too long to consolidate your student loans will cost you for many years into the future,” stated Keith D’Ambra, senior vice president of loan consolidation for Sallie Mae, in a statement.