College students with multiple government-backed loans may want to consider consolidating them before interest rates go up July 1, says Indiana State University’s director of student financial aid.

“I think there’s a good potential for savings right now,” said Tom Ratliff, ISU financial aid director.

Current interest rates “are very attractive,” he said.

Students will have to act fast, however.

An era of low interest rates on federally-backed college loans is coming to an end. A combination of rising interest rates and legislative changes to the student loan program are affecting repayments.

Rates on existing Stafford loans — government-guaranteed student loans — change annually and are tied to 91-day Treasury bills.

On July 1, interest rates will increase from 5.3 percent to 7.14 percent for repayment of Stafford loans, which are variable rates.

For PLUS (parent) loans, interest rates on existing variable rate loans will jump from 6.1 percent to 7.94 percent.

“There is a very substantial savings for parents,” who consolidate, Ratliff said.

Consolidation is an option for students who have multiple loans and at least $7,500 in outstanding debt, Ratliff said. The interest is fixed at the weighted average of the prior loans and rounded up to the nearest 1/8 of a percent.

The benefits include a single monthly payment, alternative repayment plans and a locked, fixed interest rate.

There also are potential drawbacks, including loss of a grace period, he said.

Other drawbacks include loss of interest paid by the government for Perkins and subsidized Stafford loans as well as an increase in total interest paid due to extended repayment plans.

Experts recommend locking in the lower rates but paying off the loan as quickly as possible.

New federal legislation also is having an effect on the college loan program.

Under the legislation, rates on all new Stafford loans issued after July 1 will carry a higher, fixed interest rate of 6.8 percent.

New PLUS loans as of July 1 will have a fixed rate of 8.5 percent.

According to the financial aid Web site, FinAid.org, “The era of historically low interest rates on student loans has ended,” and families are unlikely to see rates this low any time soon, it says.

A law signed June 15 by President Bush allows student loan borrowers to consolidate through any lender they choose.

“Starting with the lender you have borrowed from is normally easiest, but you can contact any lender offering federal student loan consolidations,” Ratliff said.

Last year, ISU graduate student LaKesha Simmons consolidated most of her loans to avoid a spike in interest rates.

For her, the savings was significant. Instead of paying $600 to $800 a month, she said she is paying about $400 per month.

“I’m $193,000 in debt, so it was to my advantage to consolidate,” said Simmons, who also works in the financial aid office.

Simmons suggests students with multiple loans research whether loan consolidation would benefit them. “There are some catches to consolidating” that they need to be aware of, she said. They may not be eligible for certain loan forgiveness programs.

Students are likely getting bombarded with information about consolidation and they need to do their homework and ask questions, she said.

Source: www.tribstar.com

This entry was posted by Taman Siswa on Sunday, June 25, 2006 at 4:26 pm and is filed under College Loans, Education News. Tags: College, College Loans, Financial Aid, Loans, 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.