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In a little more than six weeks the interest rate on federal student loans is expected to increase. Recently short-term interest rates increased by 25 basis points, and the new target rate for federal funds is 5 percent. With the anticipated rate hikes so close, student loan consolidation is advisable for student borrowers who want to lock in rates before the July 1 deadline.
Every July 1 federal interest rates change for federal student loans according to the 91-day Treasury bill affecting Stafford loans and the 1-year Treasury bill that affects PLUS loans.
Rate Increase Expected
Although exact rate information will not be available until May 30, the following increased rates are expected on July 1: A 7.3 percent rate on Stafford loan repayment on loans made since July 1998; a 6.7 percent rate for in-school, grace and deferments; and an 8.1 percent rate on PLUS loans.
The rate increases coupled with the new rules and regulations brought forth by the passing in February of the Deficit Reduction Act of 2005, S. 1932, are poised to negatively effect the federal student loan program, most notably the rules for consolidation. The legislation includes $12.7 billion in cuts to the federal student loan program.
Student Loan Consolidation Still Available
Students still have time to take advantage of federal student loan consolidation, which bundles together all of a student’s loans into one monthly payment at a rate that is locked for the loan’s full term. Through student loan consolidation, students also are able to extend the repayment period on their loans, which saves thousands over time.
Through NextStudent, a premier education funding company based in Phoenix, student loan borrowers can save as much as 60 percent through consolidation. The company’s offerings include a 4.75 percent interest rate for in-school borrowers. A 2.5 percent interest rate is offered to qualified borrowers when benefits are applied, including a .60 percent in savings for consolidation after graduation, a .25 percent rate reduction when students choose Auto Debit, and an additional 1 percent reduction after 36 consecutive on-time payments.
College Becoming More Expensive
As the cost of a higher education increases along with interest rates, consolidation could be the answer for students with heavy student loan debt, especially those students from low-income and middle-income families finding it more difficult to pay for college in the first place. Graduates who consolidate can use their savings to put toward the necessities of their new lives, including rent and bills, instead of trying to pay off a variety of loans with high interest rates.
Students should keep the July 1 deadline in mind and take steps now to make their lives easier through consolidation. It is important to lock in a low rate before the increase takes effect and low rates no longer are available.
NextStudent believes that getting an education is the best investment you can make, and it is dedicated to helping you pursue your education dreams by making college funding as easy as possible. Learn more about Student Loans.
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