For students and graduates attempting to keep their student loan costs down, time is of the essence.
The deadline to consolidate federal Stafford Loans or Parent Loan for Undergraduate Students is June 30, before the new higher federal interest rate takes effect
July 1.
University financial aid counselor Paul Carlile said students still in school will face a 6.54 percent interest rate, and those who begin repaying loans after July will have a 7.14 percent repayment rate.
Students should be sure to consolidate both subsidized and unsubsidized loans, Carlile said.
“If they don’t consolidate their subsidized loans, they’ll be bound to whatever interest rate is in place when they finish,” he said. “Loan consolidation is so important because we know the interest rate is going up. Federal loan consolidation fixes the interest rate and locks in the interest rate, therefore it won’t go up.”
For the first time in history, the Stafford Loan will have a fixed interest rate instead of a variable rate, according to the Treasury Department’s Web site. The jump in loan interest rates is largely because of legislation that President Bush signed in 2002 changing the interest rate on loans from variable to fixed, according to finaid.org.
Students who obtain a Parent Loan for Undergraduate Students (PLUS) loan can expect to see interest rates rise as high as 8.5 percent, according to the U.S. Department of Education. Although the PLUS Loan rate was originally expected only to reach 7.9 percent, the Higher Education Reconciliation Act of 2005 called for the rate to increase to 8.5 percent, according to the U.S. Department of Education.
According to Sallie Mae, one of the largest student loan companies nationwide, students who consolidate their loans before July 1 with the lowest current rate of 4.7 percent will make monthly payments of $129. The same payment would be $151 with the higher interest rates.
The locked interest rate depends on the total amount of debt and the interest rate on each loan, Carlile said. Students who have already consolidated have more choices.
The weighted average of the current loan combined with the fixed interest of the older loans could mean you end up paying more.
“If you have already consolidated at a fixed rate you do not be concerned if you know the interest rate is fixed at a rate you are satisfied with. Any loan dispersed prior to June 30 can be consolidated,” he said.
For more information students should log onto the U.S. Department of Education loan consolidation web site(http://loanconsolidation.ed.gov).
“The info there gives you the facts of loan consolidation without the marketing. Students can chose to consolidate with whomever they wish but that gives them a helpful place to get information and make an informed decision,” he said.
Several private companies and the U.S. Department of Education are offering students and graduates offers to consolidate their student loans. Carlile said that although most students lack the time to research these financial institutions, the biggest differences are in what financial incentives each company offers, not in how loans are consolidated.
Students who are interested in consolidating their student loans can also check with the Better Business Bureau to see if the particular company they are interested in is listed with them.
Jobetta Hedelman contributed this report.