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Letter to the editor

Student loan rates rise sharply July 1

By HELEN HUNTLEY
Published June 1, 2005

The new student loan rates that take effect July 1 will be higher than lenders had anticipated, offering a big incentive for borrowers to lock in the old rates by consolidating loans this month.

The rates are adjusted annually based on calculations tied to the final May auction of 91-day Treasury bills. Rates, which are at historic lows, will take their biggest jump because Treasury bill rates have risen as the Federal Reserve Board has pushed up short-term interest rates to head off any threat of inflation.

Rates for Stafford loans in repayment will increase from 3.37 percent to 5.3 percent, while those for parent loans will go from 4.17 percent to 6.1 percent. Borrowers who consolidate by June 30 may be able to snag rates of less than 3 percent by taking advantage of rate incentives for signing up for direct deposit and making payments on time.

In the past, a borrower had to be out of school to consolidate. This year, that option is available to those in school, although it means having to start repayment immediately upon leaving school instead of getting a six-month grace period. Lenders are aggressively marketing loan consolidation services so borrowers don't have to look far for information.

[Last modified June 1, 2005, 00:38:18]