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On money

Look at your school loan options

By HELEN HUNTLEY
Published April 23, 2006

If you borrowed money for college and haven't paid it all back, I have a homework assignment for you:

Take a close look at your options for consolidating federal education loans.

And if you're in the borrowing stage, be prepared to pay more. On July 1, we officially say goodbye to the era of record low student loan rates. Today's rates are the fourth lowest in the program's history: Stafford loan borrowers are paying 4.7 percent if in school and 5.3 percent out of school. Parents are paying 6.1 percent on PLUS loans.

Those rates adjust every year and on July 1, they are expected to climb 1.5 to 2 percentage points. We won't know exactly how much until the last Treasury bill auction at the end of May.

New borrowers will be affected by the other big change: New federal education loans will switch from adjustable to fixed rates. The rate on new Stafford loans will be 6.8 percent and the rate on PLUS loans 8.5 percent. New borrowers don't have any choice if they want the money.

However, those who have outstanding loans have the option of locking in low rates through consolidation. That means trading in their adjustable rates for a fixed-interest rate based on the weighted average rate of the loans being consolidated. The best deals are available to students who consolidate within six months of leaving school. Many lenders also offer incentives such as interest rate reductions for signing up for electronic payments or cash rebates for on-time payments.

"For most borrowers, there is no downside to locking in the rates," said Patricia Schershel, vice president of loan consolidation for Sallie Mae, the largest consolidator of student loans. She said borrowers should apply early to avoid the possibility of a last-minute glitch that puts them past the June 30 deadline.

Like any other government program, there are lots of rules. For example, if you have consolidated your loans in the past, you can't do it again unless you have at least one loan that hasn't been through the process. If you only have one lender, that's where you have to go for consolidation.

Those attending college can consolidate, but the paperwork is a little more complicated. They have to apply to put their loans into early repayment and then into deferment. They don't have to begin payments so long as they are enrolled at least half time. Postconsolidation, the government will continue to pick up the interest tab on subsidized Stafford loans (but not Perkins loans), so long as the student is enrolled at least half time.

Beginning July 1, in-school consolidation will no longer be an option. And you can't consolidate loans that have yet to be disbursed. That means loans for the 2006-2007 school year will be at the new rates.

The changes will be costly for many students. Two-thirds of new graduates of four-year colleges have student loans to pay back, with an average debt of $19,250, according to the Project on Student Debt, a research and advocacy group.

I have a portfolio of 25 stocks held in a custody account at my bank. I am charged a yearly fee of about $5,000. I never trade these stocks and don't plan to in the future. My broker is encouraging me to transfer these stocks to his company, citing no fee and no pressure to start trading. Is there a downside to this?

It sounds as though your "custody account" might be a trust. If that's the case, one issue is what kind of trust services you are receiving and whether you need them now or in the future. If you are your own trustee and your trust names someone else (not your broker, I hope) to succeed you, and you and that person are capable of managing the account yourselves, you might be able to save yourself $5,000.

The experience you have had with this broker should be a big consideration. Is the broker honest and trustworthy? Does he or she call you back and provide assistance when requested? Does the brokerage firm have a good reputation and a reasonable fee schedule? It probably isn't realistic to say you will "never" trade these stocks. There might be good reason to make a change in the future.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to hhuntley@sptimes.com to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or log onto www.sptimes.com/blogs/money where you also can see other questions and answers.

[Last modified April 22, 2006, 17:23:25]