The cost of college is about to go up even more.
Congress just passed a bill that raises interest rates on student loans and cuts $13 billion from the federal student loan programme. This comes at a time when rising tuition costs are already putting a lot of stress on college students and their families. For many years to come, these higher rates are likely to have a big effect on how much it will cost to pay back student loans.
The bill affects Stafford loans, which are popular because you don't have to check your credit or take a test to get one, and PLUS loans, which parents of undergraduate students with dependents can get regardless of how much money they need.
Under the new law, the interest rate on new Stafford loans will go up from the current 5.3 percent to 6.8 percent, and the interest rate on new PLUS loans will go up from 6.1 percent to 8.5 percent. Both prices will stay the same.
In the last eight years, the average cost of tuition, room and board has gone up at a rate that is more than double the rate of inflation. The amount of student loan debt has also gone through the roof. It went from $11,400 in 1997 to more than $20,000 in 2005, which is a rise of more than 70%.
Recent graduates or students who will graduate this spring can still lock in a low fixed rate, which is good news. But we don't have much time left. Rate increases are likely to happen on July 1, so loans must be consolidated by June 30, 2006.
Frank Ballmann, an expert on student loans and executive vice president at consolidation leader Educational Direct, said, "Time is of the utmost importance, especially for this year's graduates." "They'll need to move quickly after graduation to get the rates before July 1; based on today's interest rates, those rates will go up by more than 1.5 percent on July 1."
Ballmann gives students and their parents the following tips:
Based on the recent rise in interest rates, students with $20,000 in student loan debt will pay an extra $300 in interest next year if they don't lock in the current loan consolidation rate.
You can lock in a fixed interest rate on a consolidation loan for as long as it takes you to pay it back.
Consolidation saves money and time because it lowers monthly payments with a single fixed interest rate and makes it easier to pay back loans with just one monthly payment.
Students who want to consolidate their student loans don't have to pay anything or go through a credit check. This is a right they have under the federal loan programmes, which are made possible by the Higher Education Act.
