For students looking for a way to finance their college education, now may be the time to consider borrowing money from the federal government.
On July 1, the interest rate on federally funded student loans dropped from 8.19 percent to 5.99 percent. That’s the lowest interest rate to be offered since the student loan program began in the 1960s, said Joe Aiello, spokesman for the United States Department of Education.
Students who are still in school will receive a slightly lower interest rate of 5.39 percent.
The new rates apply to all loans first disbursed on or after July 1, 1998. But students who took out loans out before then may also be able to benefit from the new rate through a process of consolidation, which locks in the interest rate of all loans at one rate.
The lower student loan rate this year is a result of low interest levels on 91-day treasury bills, which are used as a benchmark for determining interest on student loans. The Federal Reserve lowered interest rates on the treasury bills as part of a plan to speed up the economy.
This option of converting interest rates on previous loans to one permanent fixed rate has many people encouraging students to consolidate their loans this year.
“It’s basically an opportunity for students to consolidate their loans and lock in at the lowest rate we’ve seen in a long time,” said Joelle Lester, the interim executive director for the Oregon Student Association.
About 7,000 University students received student loans during the 2000-01 school year, Student Financial Aid Director Elizabeth Bickford said.
The new rates are a good opportunity for students, she said, as long as they understand the terms of the loan repayment plan.
Typically, students began making loan payments six months after they graduate and have ten years to finish repayment. If they consolidate their loans, they can spread out the payments over a greater number of years, Bickford said.
This can have both positive and negative consequences for students, she said. Students who consolidate now would benefit from being able to fix the interest rates on their loans at the new low rate.
But even with the lower interest, they could end up paying more if their payments are spread out over a longer period of time, she said.
Timing is also important when deciding whether to consolidate student loans. Students can only consolidate their loans once, so they should wait until they have taken out all the loans they plan to, she said.
Students who are out of school will begin getting billed for payment as soon as they consolidate, she said. Because of that, students who have recently graduated should wait until about 60 days before the end of their grace period to consolidate to avoid being billed earlier than necessary.
For advice on consolidation or other repayment plans, Bickford advises students call the Department of Education or visit the department’s Web site to learn as much as they can about the options available to them. An interest rate calculator on the Web site is especially helpful for students when selecting a repayment plan, she said.
Students should not hesitate to contact the Department of Education or the University financial aid office if they are unable to make their payments or have questions about their repayment plan, she added. In most cases, she said, the department will work with students to find a payment plan they can afford.