Student loan rates are increasing, refinancing rules are changing — and midnight Friday is the deadline for borrowers to do something about it.

Federal parent loans and Stafford loan rates will increase about 2 percent under federal policy changes that will take effect Saturday, said Greg Peterson, financial aid director at Winona State University. Refinancing those loans will become a different experience after that.

Friday is the last day current borrowers have to consolidate loans; otherwise they have to wait until graduation. Under federal legislation, students and parents can no longer consolidate loans until they are done borrowing, Peterson said. Also, spouses will no longer be able to combine their loans.

One reason for the change is the complications brought on by divorce, he said.

Another shift is the repayment schedule. Under the new policy, borrowers can pay back loans based on how much money they make — gradually increasing the amount they pay as they make more money. This was previously not the case with federal loans, Peterson said.

Rates for Stafford loan rates will rise from a variable 4.7 to a fixed 6.8 percent rate. Federal parent loans will increase from a variable 6.1 to a fixed 8.5 percent rate.

Currently, about half of Winona State University’s 8,000 students borrow, Peterson said. For-profit Sallie Mae, the nation’s largest student loan holder, manages loans for 10 million borrowers in the country, said company spokeswoman Erin Korsvall.

Not refinancing could cost thousands of additional dollars in interest in the decades after a student enters the work force, advisers say.

When a student or parent consolidates — or merges existing loans into one brand-new one — the interest rate is fixed and repayment can be extended for up to 30 years. This is compared with the 10-year repayment period and rates subject to change every year.

The Indiana Secondary Market for Education Loans began emphasizing consolidation loans last year and already has seen an 83 percent increase in applications this year, said Bob Zier, vice president for loan consolidation. Nonprofit student loan agencies in states including Iowa, Ohio and Texas also have seen sizable increases in their applications as the rate increase approaches, said Alexa Marrero, spokeswoman for the Education Finance Council, an association of nonprofit secondary student loan marketers.

The Missouri Higher Education Loan Authority typically receives 150-200 consolidation loan applications a day. But on Monday, the agency received about 2,000 applications; on Sunday, it received about 2,300 — most over the Internet, said Bayer Jr., the agency’s interim executive director.

For more information on college loans and consolidation, visit www.glhec.org.

Source: winonadailynews.com

This entry was posted on Thursday, June 29th, 2006 at 10:17 pm and is filed under Education, Student Loan. Tags: College, College Loans, Education, 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.