Gwen Jones will in a few months begin repayment on $17,000 in college loan debt, so the e-mail, print and radio ads warning of a July 1 interest rate boost got her attention.

The 22-year-old Roanoke College graduate admits her father did most of her loan research in the past, but this time, the decision to lock in a lower rate by consolidating her federal loans was all hers.

“I took a personal finance course last semester and it really helped,” said Jones, who received her diploma last month.

But for the vast majority of college students, graduates and even parents, the clock is ticking to lock in some of the lowest interest rates of their lifetimes for federal student loans.

On July 1, the government-set interest rate for federal student loans will sharply increase by 1.84 percentage points on current loans.

For borrowers who haven’t consolidated their loans before that date, that jump could mean they’ll pay more interest.

Right now, depending on the loan, the interest rates for Stafford loans are at 4.7 percent and 5.3 percent.

All new loans taken out after July 1 will be fixed at 6.8 percent.

There is little disagreement that for some borrowers with outstanding loans, consolidation is the way to go before the rates go up. The rates now for student loans are the fourth lowest in the 40-year history of the student loan program, experts say.

“You can’t wake up July 1 and think ‘I would like to do this’ because unfortunately for you the door will be shut,” said Martha Holler, a spokeswoman for SallieMae, the nation’s largest educational lender.

Waiting, she said, could mean paying about $22 more in monthly payments for every $20,000 in loans borrowed.

To lock in the lower rates, borrowers have until midnight June 30 to apply for a loan consolidation, she said.

Still for many, the various loan conditions can be confusing, especially because student loans may be a person’s first experience dealing with significant debt. And consolidation may not be for everyone.

Financial aid officers at Southwest Virginia colleges are fielding questions and warning borrowers to go over the details of any consolidation arrangement carefully.

“I think the loan companies are out there pushing at full force,” said Amy Moore, director of scholarships and financial assistance at Hollins University. “I myself am getting two or three loan mailings a week.”

Barry Simmons, Virginia Tech’s director of scholarships and financial aid, said, “We call it a feeding frenzy from lenders.”

They and other financial aid officers are concerned that borrowers might be confused by the marketing. Though consolidation may offer a lower interest rate, borrowers could wind up paying more overall if they lengthen their repayment period.

Also, consolidation can sometimes cause borrowers to lose the six-month grace period they have before they must start payments.

That was a concern for Jones, who is still job hunting, but she said she negotiated with her lender to maintain her grace period.

Complicating matters, new rules allow students to shop around for lenders before consolidating.

Under the old rule, borrowers whose loans were held by a single lender must consolidate with that lender. But some college financial aid experts advise students to negotiate with their original lender first.

Though they may be bombarded with ads from companies looking to win their business, borrowers may find the best consolidation deal from their original lender, so calling it with questions is a good place to start, said Tommy Blair, financial aid director at Roanoke College.

Such federally backed student loans were established in 1965 by the Higher Education Act, which Congress amends every five years.

More than $60 billion in federal student loans will be distributed to about 8 million student borrowers in 2006.

While some may grumble at the mention of higher interest rates — especially when just a couple of years ago interest rates hit all-time lows at 2.77 percent and 3.37 percent — Holler said the opportunity now is still an excellent one. The increase is actually smaller than last year’s jump of 1.93 percentage points, she said.

“We are in a rising rate environment,” she said. “Not taking action now will cost you real money.”

This entry was posted by Taman Siswa on Sunday, June 25, 2006 at 4:20 pm and is filed under College Loans, Education News. Tags: College, Education News, Financial Aid, Loans, Scholarship, Student, Student Loan, . 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.