Colleges urge students to consolidate federal student loans
Posted on January 10, 2008
Filed Under Debt Consolidation, Mortgages, Sub Prime Mortgage |
Interest rates on federal student loans will increase nearly two points July 1 and college students stand to save thousands by consolidating Stafford loan debt now.
But with final exams and graduation at hand, debt refinancing is probably the last thing students are thinking about.
It’s a hard thing for students to grasp right now, said Cathy Simoneaux, director of Loyola University New Orleans’ Office of Scholarships and Financial Aid. It’s not really real until you have to pay the bill. But anyone with outstanding Stafford loans needs to look at consolidating.
Interest rates on the Stafford loan, the most commonly used federal student loan, are now at the lowest level in years. But they are going up sharply soon.
Borrowers will pay 2.77 percent interest on Stafford loans during their six-month grace period after graduation and 3.37 percent during the repayment phase, said Martha Holler, spokeswoman for Sallie Mae, a Reston, Va.-based company that manages more than $107 billion in student loans for more than 7 million borrowers.
However, beginning July 1, interest rates will increase to approximately 4.61 percent and 5.21 percent, respectively.
The federal government adjusts interest rates for federal student loans once a year after the May Treasury bill auctions.
The auctions take place weekly but the government focuses on results of the last T-bill auction in May to set the rate for the next fiscal year, which begins July 1. Because the last auction is May 30 this year, the rate could still fluctuate a bit but not significantly, Holler said.
The interest rate on a Stafford loan is capped at 8.25 percent.
Last year, the average federal and private loan debt for undergraduate Loyola students was $18,542, said Simoneaux.
Eighty percent of the 3,600 undergraduate students at Xavier University use federal and private loans to pay for their education, said Mildred Higgins, financial aid director.
It would be to their benefit to consolidate, Higgins said. Right now, they’re thinking about getting jobs. It hasn’t hit them yet.
Graduates carrying $20,000 in Stafford loan debt could pay more than $5,000 in interest over the 10-year life of the loan if they opt to wait six months until they start paying it back.
If they consolidate now, they can lock into a lower fixed-rate loan using a combined weighted average of the interest rates of the consolidated loans adjusted to the nearest one-eighth percent.
For instance, if a graduate consolidates $20,000 in Stafford loan debt at the 3.37 percent interest, the graduate would pay about $3,600 in interest over 10 years, which saves $1,400 over 10 years.
Consolidation loans can be 30-year loans, too.
We look at loan consolidation as a graduation present that student loan borrowers give themselves, Holler said. It’s hard to come up with a reason not to consolidate before July 1. But because of all the rules surrounding consolidation, the most important thing for people to do is to make an informed decision for them.
There are limitations and restrictions in the federal consolidation process.
At Dillard University, each student is required to complete exit loan counseling before graduation, said Cynthia Thornton, director of financial aid.
During the exit loan counseling, we advise our students of upcoming trends and issues such as this expected change in the student loan consolidation rate, Thornton said.
Patrice Coleman, a senior to-be at Dillard University this fall, plans to consolidate her nearly $20,000 in Stafford loans but she doesn’t think other students understand the increase.
I think it’s a big concern right now, she said. It should be, especially if they don’t have jobs.
Experts say there’s plenty of information available to students. To start the Stafford loan consolidation evaluation, begin with your lender.
If you do decide to consolidate, do it soon. Once new interest rates are set July 1, there’s no turning back.
We’d hate to have someone that wakes up July 1 or July 2 and says, ‘Yeah, I’d like to do that now.’ We’d have to tell them no, Holler said.
Copyright 2005 Dolan Media Newswires
Provided by ProQuest Information and Learning Company. All rights Reserved.
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