Lock in low student
many 2005 graduates, it will soon be pay-up time.
grace period on student loan payments has begun for anyone who tossed up a graduation
cap in May or June.
It's time to start
thinking about those pesky student loan obligations and map out a payment strategy.
The good news is the interest payments. They've never been better.
The bad news is time. You only have until June 30, 2005, to lock
in the low rates. New rates go into effect July 1. And the new rates
are nearly 2 percent higher.
Last July, the interest rate on federal Stafford loans dropped
from 3.42 percent to 3.37 percent, the lowest rate in the 36-year history of the
student loan program. However, beginning July 1, a 1.93 percent increase on Stafford
loans will apply bringing the interest rate to 5.3 percent and up to 6.1 percent
for PLUS loans (parent loans).
This interest rate only applies
to Stafford loans disbursed after July 1, 1998. Stafford loans disbursed prior
to July 1998 have slightly higher interest rates than more recent loans, but those
interest rates are still lower than they've been in years.
student loan rates this low there's never been a better time to check out a federal
consolidation loan. It's a great way for a borrower to lock in a super-low rate
for the life of the loan.
The Stafford program is the largest source of student loan funds
in the country. In the 2003-2004 school year 6.2 million students borrowed over
$40 billion in Stafford loans, according to the College Board's Trend in Student
The interest rate on a consolidation loan is determined
by taking the weighted average of interest rates on the federal education loans
the student has and rounding up to the nearest one-eighth of a percentage point,
capped at 8.25 percent. The final rate will differ from student to student.
a federal consolidation loan, your lender pays off the balances of all the loans
you choose to consolidate and then issues you a new loan. The rate is fixed. A
consolidation loan may lower your monthly loan payments by as much as 40 percent
and it can also stretch out your repayment period.
The program offers a
discount for students who enter into consolidation during the six-month grace
period after graduation. "Basically, you can get a 60-point discount if you
lock in during the grace period," says Barry Morrow, chief executive officer
at Collegiate Funding Services.
"You're almost crazy if you don't look
at this," says Morrow.
That's important because the interest rate on
your consolidation loan is based on the interest rates of the loans you already
have. So normally, if you get your consolidation loan during the grace period,
you'll be locking in the lowest available rate.
student loan rates
1, 2000, to June 30, 2001
|PLUS loans: ||8.99%|
July 1, 2001, to June
|PLUS loans: ||6.79%|
July 1, 2002, to June
|PLUS loans: ||4.86%|
July 1, 2003, to June
|PLUS loans: ||4.22%|
July 1, 2004, to June
|PLUS loans: ||4.17%|
July 1, 2005, to June
|PLUS loans: ||6.1%|
example, last year if a student consolidated during the six-month grace period,
the Stafford loans carried an interest rate of just 2.77 percent, rather than
the 3.37 percent rate that would have kicked in at the start of the repayment
period. By consolidating during that grace period, a student with $20,000 in Stafford
loans could have saved $666 in interest over a 10-year repayment period. And Stafford
loans probably make up the bulk of students' debt.