Federal Student Loan Interest Rates to Rise Nearly 2 Full Percentage Points This Summer
May 30, 2006 - Posted in Student LoanStudent loan interest rates will climb 1.84 percentage points this summer — one of the largest increases in the history of the federally guaranteed student loan program. Students, graduates and parents who have student loans can avoid the rate hike if they apply to consolidate their student loans by June 30.
“Student loan consolidation is the best way to protect yourself from a very significant interest rate increase on July 1,” said Keith D’Ambra, senior vice president of loan consolidation for Sallie Mae, the nation’s leading provider of education funding and largest consolidator of student loans. “Time is money, and waiting too long to consolidate your student loans will cost you for many years into the future.”
Following are the interest rates that will go into effect on July 1, 2006 for Federal Stafford and PLUS Loans first issued on or after July 1, 1998 and on or before June 30, 2006:
* Stafford Loans (in school, grace and deferment periods): 6.54 percent * Stafford Loans (repayment): 7.14 percent * PLUS Loans: 7.94 percent
By law, interest rates on existing Federal Stafford and PLUS Loans are variable and reset annually on July 1 based on the 91-day Treasury-bill yield from the last auction in May, plus a margin of interest set by federal law. For loans issued after July 1, 1998 and before July 1, 2006, Stafford Loans are capped at 8.25 percent and PLUS Loans may not exceed 9 percent.
To guard against rising student loan interest rates, current Stafford and PLUS Loan customers may consider student loan consolidation, which features a fixed interest rate calculated as the weighted average of the rates of the loans consolidated, adjusted up to the nearest 0.125 percent, and not to exceed 8.25 percent. Through student loan consolidation, customers currently enrolled in school or in their six-month grace period can potentially lock in an interest rate as low as 4.75 percent for the duration of their loan’s term, as opposed to a rate of 6.625 percent after July 1.
“With interest rates currently at their fourth-lowest levels in history and set to rise, it is important for both students and parents to carefully consider their consolidation options in order to take advantage of significant savings,” said Richard Bellows, executive director of financial aid, Butler University. “We are encouraging our continuing students and their parents, as well as this spring’s graduates, to act quickly to reduce their education borrowing costs.”
Consolidating student loans by June 30 adds up to real savings. For example, a student graduating from college this spring with a balance of $20,000 who consolidates before July 1 at an interest rate of 4.75 percent will have a monthly payment of $129. If that same customer waits until after July 1 to consolidate at an interest rate of 6.625 percent, his or her monthly payment would jump to $151, $22 higher simply because the borrower waited until after July 1 to consolidate. In total, waiting to apply for consolidation until after July 1 would cost this borrower $5,123 more in interest over the life of his loan.
“One month from today, this opportunity will be gone,” continued D’Ambra. “Missing the June 30 deadline could cost a bundle. Student and parent borrowers simply cannot afford to procrastinate when it comes to consolidating their student loans.”
In addition, Sallie Mae offers borrowers who wish to consolidate an even deeper discount of up to 1.25 percentage points. Eligible borrowers with a balance of at least $10,000 will receive a rate discount of 1 percentage point after making their first 36 payments as initially scheduled. These borrowers will continue to receive the reduction as long as they make payments according to that schedule. In addition, borrowers with a minimum balance of $7,500 are eligible to receive an immediate 0.25-percentage-point reduction in the interest rate on their Consolidation Loan after they sign up to pay via direct debit. Combined, these benefits can provide the average borrower with $4,200 in savings on a $25,000 loan.
D’Ambra cautions student borrowers to be savvy when shopping for a consolidation lender: “With the deadline looming, contact your primary lender for the fastest and surest way of securing today’s rates. Watch out for misleading marketing materials and get the facts before you sign on the dotted line. Waiting until the 11th hour could put you at risk. Also, if you are a Direct Loan borrower, consider a private lender like Sallie Mae. Private lenders offer principal and interest rate reductions not available in the Direct Lending program.”
Separately, with the passage of legislation from 2002 and the Deficit Reduction Act earlier this year, interest rates on new Stafford Loans issued on or after July 1, 2006 will be fixed at 6.8 percent. PLUS Loans issued on or after July 1, 2006 will receive an interest rate of 8.5 percent. While rates may be on the rise, federal student loans are still the most economical way to finance a higher education. “It would be very unfortunate for families to hear this news and think they cannot afford college,” said Tom Joyce, vice president of corporate communications for Sallie Mae. “Student loans carry competitive interest rates — lower than other consumer loan classes — and offer a number of other benefits, such as flexible repayment plans, deferment and forbearance options and tax deductibility.”
Sallie Mae offers Stafford, PLUS and Consolidation Loan borrowers the ability to apply for a loan, review their rights and responsibilities and submit their “signatures” electronically through Sallie Mae’s Web site, http://www.salliemae.com/. For more information, individuals can visit http://www.salliemae.com/ or speak with Sallie Mae’s specialists by calling toll free:
* Consolidation Loans: 800/448-3533, Monday through Thursday, 8 a.m. to 11 p.m., Friday 8 a.m. to 8 p.m., and Saturday 10 a.m. to 4 p.m. Eastern Time * Stafford Loans: 888/2-SALLIE, Monday through Thursday, 8 a.m. to 8 p.m., and Friday, 8 a.m. to 5 p.m. all time zones * PLUS Loans: 800/891-1410, Monday through Friday, 8 a.m. to 11 p.m. Eastern Time
News media are invited to visit http://www.salliemae.com/News for additional resources and information. To schedule a media interview, contact Erin Korsvall at 703/984-5136.
SLM Corporation , commonly known as Sallie Mae, is the nation’s leading provider of education funding, managing nearly $127 billion in student loans for 9 million borrowers. Sallie Mae was originally created in 1972 as a government-sponsored entity (GSE) and terminated its ties to the federal government in 2004. The company remains the country’s largest originator of federally insured student loans. Through its specialized subsidiaries and divisions, Sallie Mae also provides debt management services as well as business and technical products to a range of business clients, including colleges, universities and loan guarantors. More information is available at http://www.salliemae.com/. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.
Sallie Mae
CONTACT: Erin Korsvall of Sallie Mae, +1-703-984-5136,
erin.korsvall@salliemae.com
Web site: http://www.salliemae.com/
Company News On-Call: http://www.prnewswire.com/comp/827187.html
(c) 2006 PR Newswire. All rights reserved.