Around this time of the year, anxious high school students find out whether they’ve been accepted by the college of their choice. For their parents, there’s the added anxiety of how to pay for that college education.

If you’ve got college loans, the magic date is July 1 — when the interest rates are set to rise significantly. Experts advise students and parents to consolidate their loans before then to lock in the current low rates.

“The era of historically low interest rates on student loans has ended, and families are extremely unlikely to see rates this low ever again,” said Mark Kantrowitz, publisher of FinAid.org, a college-financing information Web site.

The variable interest rate on existing federal student loans will be recalculated by the U.S. Department of Education May 30, and the new rates will go into effect on July 1.

‘Biggest increase’

Mark Brenner, vice chairman of College Loan Corp., a student loan lender, said the hike will be the “biggest increase in the history of the (student loan) program.”

Rates are expected to rise at least 1.5 percentage points “and maybe as much as 2 percentage points,” said Pat Scherschel, vice president of loan consolidation for Sallie Mae, the largest college-loan finance company.

In addition, interest rates on new loans issued after July 1 will have substantially higher fixed rates instead of variable rates.

The rates on the cheapest money students can borrow — subsidized Stafford loans — will jump to a 6.8 percent fixed rate on July 1 from variable rates that are as low as 4.7 percent.

Rates for the Parent Loans for Undergraduate Students, or PLUS loans, will rise to a fixed 8.5 percent from the current 6.1 percent.

Don’t dillydally on this one.

Parents or students “must get their consolidation application in by June 30,” Scherschel said. “The penalty in being one day late in your paperwork is to pay potentially thousands of dollars more,” she said.

Generally, it’s best to consolidate your loans at least a month before the deadline to give lenders time to process the paperwork, Kantrowitz said.

The average student with $20,500 in subsidized Stafford loans can save almost $3,000 in interest payments over the life of the loan by locking in a current repayment rate of 4.5 percent instead of letting the rate reset at the projected rate of 6.99 percent, according to College Loan.

Parents with PLUS loans can consolidate existing loans to lock in the current rate of 6.1 percent vs. a projected rate of 7.79 percent.

“Being able to lock in these low fixed rates is one of the best financial opportunities they’ll ever have,” Brenner said.

Loan consolidation combines several student or parent loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. Consolidation loans often reduce the size of the monthly payment by extending the term of the loan beyond the standard 10-year repayment plan.

Kantrowitz said it’s “a common misconception” that student loans can be consolidated only once in a lifetime.

“Borrowers can consolidate multiple times, so long as each new consolidation loan includes at least one unconsolidated loan,” he said.

That’s what Dallas attorney Michael Collins did.

Loans can be consolidated

He has consolidated his PLUS loans three times for his three children. Compared with more than 6 percent for each loan, his consolidated interest rate is now 4.875 percent.

“I can’t match that rate anywhere else,” Collins said.

He advised other parents to consider a PLUS loan.

“Every parent should look into the PLUS loan seriously because it does eliminate the financial strife when they’re going through college age,” Collins said. “By taking a PLUS loan and having the expenses of college taken care of, you can concentrate on helping your child be a success in college.”

Consolidation also gives you a single monthly payment and raises your credit score because it shows you’ve paid off your existing student loans.

The first step in consolidating is to contact your lender. You will need to provide details of each student loan you wish to consolidate.

The new consolidation loan will be opened in your name for the exact amount you owe. The new loan’s proceeds are then used to pay off each holder of your existing loans.

The new single loan features a fixed interest rate calculated as the weighted average of the rates of the loans consolidated, adjusted up to the nearest 1/8 percent and capped at 8.25 percent.

Repayment on a consolidation loan begins within 60 days of disbursement, unless the borrower qualifies for a deferment or forbearance.

A deferment allows a borrower to postpone repaying the loan for a specified period. Most federal loan programs allow students to defer their loans while they are in school at least half time.

Forbearance can be an option for borrowers with temporary financial difficulty. It allows a borrower to suspend or reduce payments under certain circumstances and for specified periods.

Forbearances are granted at the lender’s discretion.

Brenner, of College Loan, has one final piece of advice for parents and students anxious over paying for college.

“The one thing I would remind families of is to stay calm,” he said. “There are lots of different ways for that family to pay for the education.”

Source: poughkeepsiejournal.com

This entry was posted by Taman Siswa on Tuesday, May 16, 2006 at 11:06 pm and is filed under College Grant, College Loans, Education News, Financial Aid, Student Loan. Tags: College, College Loan Corp., College Loans, Dallas, Education News, finance, Grant, information Web site, Loans, Mark Brenner, Mark Kantrowitz, Michael Collins, Pat Scherschel, Sallie Mae, Student, Student Loan, student loan lender, U.S. Department of Education, . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.