Student loan interest rates to dive
© St. Petersburg Times,
The cost of a college education is about to go down for a lot of people: Interest rates on federally guaranteed student loans will drop dramatically July 1 to their lowest levels ever.
Although most of the savings will go to recent graduates, anyone repaying a variable-rate Stafford Loan will benefit, as will parents repaying PLUS loans.
The potential savings are huge, with more than $180-billion in federally guaranteed loans now in repayment. At the University of South Florida alone, students and their families took out $76-million in Stafford Loans and $1.7-million in PLUS loans in the 1999-2000 school year.
The interest rate on Stafford Loans issued since July 1, 1998, and currently in repayment will drop from 8.19 to 5.99 percent. The savings on a typical $10,000 10-year loan will amount to about $10 a month.
Rates on variable-rate Stafford Loans issued earlier also will fall, but not as far. The new rates on those loans will range between 6 percent and 7 percent, depending on the formula in effect when they were issued. The rate on parents' PLUS loans will drop from 8.99 percent to 6.79 percent.
"This is the lowest rate in the history of the student loan program, lower than even the 7 percent in place when the student loan program began in 1965," said John E. Dean, lobbyist for the Consumer Bankers Association.
The historic drop is occurring because market interest rates are the lowest they have been since the current rate formula went into effect in 1998. That formula adjusts rates every July 1 based on the rate for 91-day Treasury bills.
The new rates are only good for a year, but borrowers have the option of locking them in by consolidating their variable-rate loans into a fixed-rate loan.
Mark Bortel of St. Petersburg plans to be one of the first to take advantage of that opportunity. Bortel, 25, owes $12,874 he borrowed while earning a degree in social and political science from Florida State University.
He learned about consolidation when he went to work three months ago for Collegiate Funding Services, a student loan consolidator that employs about 400 people at a call center in Pinellas Park.
"I've been waiting since then for the rates to go down," he said. In addition to getting the current low rates, he plans to take advantage of Collegiate Funding's offer to cut his rate further if he signs up to make payments electronically.
There are no fees to consolidate student loans, but you can do it only once for the same group of loans. Once the rate is fixed, the borrower can't benefit from further reductions in the variable rate. Consolidation also stretches out the term of the loan, which can increase the amount of interest paid over the life of the loan, even if rates are lower.
Students who take out loans to pay for college leave with an average debt of $10,173 for an undergraduate program and $24,479 for a graduate program, according to the Lumina Foundation. At Eckerd College in St. Petersburg, the 886 students who took out loans last year borrowed an average of $6,370.
More information about student loans and loan consolidation is available from Sallie Mae at (800) 448-3533 or http://www.salliemae.com and from Collegiate Funding Services at (888) 423-7562 or http://www.cfsloans.com.
- Helen Huntley can be reached at email@example.com or (727) 893-8230.
Here's a look at some student loan rates that will be reduced July 1. Rates vary depending on when the loan was issued and whether the borrower is still in school:
Issued since July 1, 1998:
Current: 8.19% (7.59%*)
New: 5.99% (5.39%*)
Issued July 1, 1995-June 30, 1998:
Current: 8.25% (8.25%*)
New: 6.79% (6.19%*)
Parents' PLUS loans
Issued since July 1, 1998:
Current: 9.0% to 9.63%
New rates not yet available
* Rate if still in school
-- Source: Sallie Mae
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