Student Loan rates to rise!

Posted on Sun, Jun. 19, 2005
Student loan rates to rise

RUSH TO LOCK IN BARGAIN: JULY 1 IS THE LAST CHANCE TO SAVE BIG ON
INTEREST

By Matthai Chakko Kuruvila

Mercury News


If it wasn't the steady stream of loan offers in her mailbox, it was
the e-mail from Stanford University's financial aid office that finally
pushed Grace Chang to consolidate her student loans.

The e-mail notice advised that on July 1 interest rates on student
loans would make one of the biggest leaps ever.

``I knew I could save a lot of money,'' said Chang, a fourth-year
student at Stanford Medical School, where tuition and living expenses
are roughly $80,000 a year.

Current and former students have only until July 1 to lock in the
lowest interest rates in the 40-year history of the student loan
program. Those with student loans could save at least $1,000 in
interest for every $10,000 in debt over the course of a 10-year loan.

``At this point, it's a no-brainer,'' said Mark Kantrowitz, publisher
of FinAid.org, a Web site that provides extensive information on
student loans. ``If you can consolidate before July 1, you should.''

The interest rate changes come as more students than ever are taking
out loans, with their debt rising rapidly, according to the most recent
study from the National Center for Education Statistics.

Those receiving bachelor's degrees in the 1999-2000 school year took
out an average of $19,300 -- $7,200 more than those who graduated in
1992-1993. Roughly 65 percent of those who graduated in 1999-2000 took
out student loans, compared with 49 percent of those graduating in
1992-1993. At San Jose State University, students graduate with roughly
$13,000 in debt, according to the same study.

That debt will rise unless students consolidate their loans by the end
of the month. Beginning July 1, interest rates on Stafford loans, the
most common federal loan, are rising from 2.77 to 4.70 percent for
those still in school or recent graduates still in the loan repayment
grace period. For graduates already paying back their loans, interest
rates are rising from 3.37 to 5.3 percent.

The spike in interest rates isn't the only reason to consider
consolidation: The Bush administration has proposed doing away with
fixed-rate consolidation loans and only allowing variable rate loans by
July 1, 2006.

The July 1 interest-rate rise also applies to parents who have taken
out loans to finance their children's education. Rates on PLUS loans --
Parent Loans for Undergraduate Students -- will increase from 4.17 to
6.1 percent. Parents can consolidate the Stafford loans they may have
for their own education with PLUS loans they've taken out for their
children.

Thanks to a Department of Education ruling earlier this year, currently
enrolled students can also consolidate their loans.

There are limitations. If you've already consolidated one set of loans,
you can't consolidate them again. Parents and children cannot mingle
their loans and consolidate them. To qualify for consolidation, lenders
typically require a minimum of $7,500 in loans, though Sallie Mae, the
nation's largest student loan lender, sets a $5,000 minimum.

Consolidating might not be the right choice for everyone, warned
Colleen Brown, director of financial aid and scholarships at San Jose
State University.

Combining loans may eliminate the six-month post-graduation repayment
grace period -- though many lenders will allow you to keep a grace
period, which they may call a deferment or forbearance period.

``We want them to be very sure that's what they want to do,'' Brown
said. ``They need to plan that the six-month grace period may not be
there.''

For students who have already graduated and are already paying back
their loans, however, ``it's a good deal to consolidate,'' Brown said.

If you've got Perkins loans, don't bother, say Kantrowitz and Brown.
Those loans, given to students with exceptional need, are already at a
fixed 5 percent interest rate that won't rise on July 1. And
consolidating a Perkins loan with lower interest Stafford loans would
give you an unnecessarily high interest rate. In addition,
consolidation would force you to relinquish the nine-month,
post-graduation repayment grace period as well as the subsidized
interest payments for repayment and even eligibility for loan
forgiveness programs.

The biggest hurdle for those considering consolidation may be time.
There are only 11 more days to consolidate. Chris Chapman, chief
executive of All Student Loan, a Los Angeles-based non-profit lender,
said as long as the application is in by June 30, borrowers could lock
in the rates with many lenders -- even if changes or revisions need to
be made.

Chang, the Stanford medical student who applied for consolidation
earlier this month, said she spent many hours going through all the
possible options.

``I'm sure some of my other friends would not have the time to do all
this research,'' she said. ``It's an unfortunate situation because it's
so individually based. Each person has his or her own set of loans, and
how to consolidate them differs from individual to individual.''


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