Friday, June 1, 2007
Mevish Jaffer, contributing editor
Financing a college education is a huge responsibility and one that unfortunately not all parents and students are able to do on their own as a result of financial limitations. Often students can apply for various scholarships in the hopes of getting financial assistance; however there are specific eligibility requirements that restrict some parents and students from qualifying. Thankfully, financial assistance is also available through federal student loan programs. Among the important factors to take into consideration for student loans are the varying interest rates and terms that are applied.
The rates on two major federal education-loan programs will rise only slightly this year, which is good news for students and parents that need help to finance college tuition and fees. July 1st will mark a rise of 0.08 percent in points for older Stafford and PLUS parent student loans. According to student-loan provider Sallie Mae, for borrowers of the need-based Stafford loans who are currently enrolled in school, interest rates will rise to 6.62 percent and PLUS loan rates will rise to 8.02 percent. As for borrowers who are already in the process of paying back their Stafford loans, the interest rate is expected to be 7.22 percent.
While the rate changes aren’t significantly big, Sallie Mae suggests that parents still have the opportunity to save some money by consolidating PLUS loans prior to July 1st. The change in interest rates will only affect loans that were taken out before July 1, 2006. Interest rates attached to loans taken out from that date and onward have been fixed at 6.8 percent for Stafford loans and at 8.5 percent for PLUS loans. Another benefit to consolidating before July 1 of this year involves students with Stafford loans having the availability to invoke a grace-period rate of 6.625% if need be. The extension period expires six months after graduation.
According to College Loan Corp., a San Diego based student loan lender, the advantage of undergoing student loan consolidation during the grace period will allow a typical 2007 graduate student with a total amount of $20,500 in loans to save by paying $790 of interest over the 10-year life of a loan. Senior Vice President of Capital Markets with College Loan Corp., John Falb said, “The key factor is to consolidate while you’re still in your grace period.”
Borrowers are also able to benefit by lowering monthly payments and extending terms as a result of loan consolidation. According to Sallie Mae, student loan consolidation has the potential to cut monthly payments in almost half by lengthening the repayment period to up to 30 years from 10 years. On the down side however, borrowers will most likely wind up paying more interest down the road by extending the student loan repayment period.
Furthermore, students that are just now getting out of school and stepping out into the real world will be able to manage their monthly student loan repayment schedule far more efficiently. Vice President at Sallie Mae, Patricia Scherchel adds, “Consolidation is an excellent tool for managing payment of your student loans.”
