Paying for college
Current and former students who have put off consolidating their federal student loans may be glad to hear there is still hope for a low interest rate.
Interest rates on Stafford and PLUS loans fell to record lows July 8, benefiting students who still have variable-rate loans and leaving those with consolidated loans paying a higher rate than new consolidators.
Rates for Stafford loans taken out after July 1, 1998, are now the lowest, dropping to 3.46 percent from 5.39 percent. Loans disbursed between July 1, 1995, and June 30, 1998, dropped to 4.26 percent from 6.19 percent.
PLUS loan rates on money borrowed on or after July 1, 1998, dropped to 4.86 percent from 6.79 percent. Loans disbursed between July 1, 1994, and June 30, 1998, dropped to 5.23 percent from
6.56 percent.
Financial aid director Elizabeth Bickford said she was very happy that the interest rates are lowering for federal loans.
“It will definitely help students and certainly help parents (with loans),” she said.
Unfortunately, the new rates will only affect students who are still in school and haven’t started repayment. Also, new rates won’t affect students who have already consolidated their loans.
According to University Direct Loan Coordinator Kyna Burgett, there are a few downsides to consolidation. For instance, those who already have consolidated loans will not be able to take advantage of the new rates. Consolidated loans are fixed based on the rate at the time and can’t be reconsolidated.
Also, “If you’re in school and you consolidate, you lose your grace period on your loan,” Burgett said. “If you decrease your monthly payment with a consolidated loan, you may end up paying longer.”
Burgett added that the benefits of loan consolidation depend on how much a borrower can spend per month repaying.
Variable rates for federal student loans are based on the three-month Treasury bill. Adjusted each year on July 1, each new rate remains in effect for 12 months.
Alternately, consolidated loan rates depend on a formula that weighs the average of the borrower’s current loans and rounds up to the nearest one-eighth percent. The rate then remains static throughout the life of the loan.
According to Carol Wirthman, a student loan regional manager with U.S. Bank, now is the time for students enrolled in classes to apply.
“It is a good time to get new loans,” she said. “The rate is the lowest it’s ever been.”
Contact the senior news reporter at [email protected].