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Written by: Shelley Rodgers
Published: 06/01/2005 Student Loan Interest Rates to Rise July 1
The federal government is set to raise interest rates on student loans by nearly two percentage points beginning July 1, 2005. The rate increase means higher interest payments over the life of the loans and will translate into billions of dollars more paid by students and parents. In order to avoid the rate hike, some student loan borrowers may be wise to consider consolidating their debt before July.
The federal Stafford loan interest rate for borrowers—who are in school, in their grace period or in deferment—will rise from 2.77 percent to 4.7 percent. The rate for borrowers repaying Stafford loans issued since July 1998 is projected to be 5.3 percent, up from 3.37 percent. Federal PLUS loans for parents will rise to 6.1 percent.
Federal student loan interest rates are subject to change every year on July 1 and are calculated according to a statutory formula based on the 91-day Treasury bill, plus a margin. Rates are based on the auction of the 91-day T-bill each June 1.
Student loan borrowers who have not previously consolidated their debt should consider the benefits of loan consolidation. For example, a 2005 college graduate with $20,500 in Stafford loans would save $2,842 over a 10-year repayment period by consolidating before July 1. The same student with $60,000 in debt could save as much as $8,318 over the same repayment period, reports CNNMoney.com.
Student loan borrowers may consolidate in either of the two federal student loan programs, the direct loan (DL) or Federal Family Education Loan (FFEL) program. For students whose loans are all from the same lender in the FFEL program, however, they are required by law—called the single-holder rule—to consolidate with that lender. Additionally, borrowers who are still in-school may consolidate their loans before they graduate by requesting early repayment status from their lender as well as an in-school deferment.
The U.S. Department of Education provides additional information about student loan consolidation.
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