Mark July 1, 2006 on your calendar if you have student loans or plan to get them. Big changes are coming that will affect you. The Federal Government changes the interest rates on Federal student loans every July 1. This year is different, though. Not only will the rates on popular Stafford student loans go from a variable rate of 4.7 percent to a fixed rate of 6.8 percent, but the government has also passed a number of other laws that will have a big impact on both current and future students, as well as those who haven't yet consolidated their loans.
Which student loans will be changed?
Student loans that are part of the Federal
Student loan programmes like the Stafford Loan and the PLUS (Parent Loan for Undergraduate Students)
Undergraduate Students), the Consolidation Loan, and the Perkins Loan. The interest rate that can be charged on each type of loan is limited. After July 1, 2006, interest rates on student loans will be dangerously close to the limit set by the government, but they will not reach it. The interest rate on PLUS loans will go from a variable rate of 6.1 percent to a much less appealing fixed rate of 8.5 percent, which is just half a point below the maximum interest rate of 9 percent.
Why are the rates on student loans going up?
Part of the Senate's $40 billion plan to cut the deficit is to raise the rates on student loans. Federal student loans, you guessed it, account for the biggest single cut in spending. In the 2006-2007 school year, almost 11 million students are expected to borrow $108 billion in federal student loans. This has a huge effect on the budget of the United States.
What will happen to me if the interest rates on my federal student loans go up?
The number of loans that can be given won't change because of these changes. Instead, those who do get student loans to pay for school will pay back more money in interest over the life of the loan. Most students pay for school with loans from the government. The rate increases come at a time when students and parents are already trying to get used to the huge increases in tuition and fees over the past ten years.
How can I make sure that these changes don't hurt my finances too much?
If you're done with school, consolidating your loans now will let you keep the interest rates you had before July 1. People who are still in school or haven't graduated yet can still consolidate their loans before a new Senate bill makes it impossible to do so while still in school. Students now and in the future should be careful to only borrow what they need to pay for school.
Now is the right time to combine your student loans.
If you haven't already, now is the time to consolidate your loans. By refinancing before July 1, 2006, you can lock in your repayment rates at historically low levels and enjoy all the other benefits of refinancing, like a lower monthly bill, a single monthly payment, and a better credit score because you have fewer open accounts.
Options for Current Students to Consolidate
Students still have until July 1st to lock in the lower interest rates.
rates by putting all of their loans into one. Under the new law, in-school consolidation will no longer be possible after July 1. If a student chooses to consolidate their loans while still in school before July 1, they will have to give up the 6 month grace period after graduation. However, they will be able to keep the historically low interest rates of today for the entire life of their loan.
What are some other things that are changing?
Not all of the changes are bad, but all of them mean paying more in interest. As another way to pay for graduate school, students can now take out PLUS loans for themselves. All fees charged to borrowers will go down. The current FFELP fee will be completely eliminated by 2010, and the Direct Loan fee will go from 4.0 percent to 1.0 percent over the next few years.
Where can I get help to make sure that these changes hurt me as little as possible?
At best, it can be hard to figure out what all of these changes mean. Companies like ScholarPoint that specialise in student loans have experts you can talk to and give you access to online help, loan calculators, and information that could save you thousands of dollars. Those who don't know about the changes and don't consolidate will suddenly find themselves with a lot more debt than they expected. By consolidating your student loans before July 1, 2006, you can save a lot of money if you know what you're doing and have a good plan.
