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THIS ARTICLE IS SCHEDULED TO BE UPDATED. SOME INFORMATION MAY BE OUTDATED.
Even in the case of student loans, all good things must come to an end. Every year the government resets the interest rates on July 1st – usually without much change. Like any market, a percentage point change is expected and healthy but 2006 will be different. This year, due to recent new legislation, not only will interest rates take a sharp turn upward, but many of the benefits borrowers now enjoy will also be coming to an end.
The change comes as a result of the federal government’s $40 billion dollar budget deficit reduction plan aimed at plugging the nations growing debt. In an effort to repay some of the money spent, the government has agreed on a several places to cut spending and increase revenue; the largest chunk of which comes from the federal student loan program.
On July 1st new rates will be implemented for existing student loans and new loans. Any student loans that have variable interest rates such as the popular Stafford Loan and the PLUS (Parent Loan for Undergraduate Students) will see a rate hike. Those that have been out of school for years and haven’t made the move to consolidate student loans will see the interest rate increase on their bills after July 1st. Because these are variable rate loans, the amount of interest due on payments at any given time is dependant on the year’s current interest rate. The way to avoid this is to consolidate student loans and lock in today’s low interest rate for the remainder of the loan.
New Stafford loans will increase from 4.7% in deferment and grace periods, and 5.3% in repayment, to a fixed rate of 6.8% during all periods. PLUS loans will jump from 6.1% to a fixed rate of 8.5%. Interest rates on existing student loans are a different story. Rates on these loans have been low for the last few years. In 2005-2006 the Stafford loan repayment interest rate had a variable of 5.3% which will increase 1.84 percentage points to a whopping 7.14% after July 1st, 2006. PLUS loans will shoot skyward from 6.1% to 7.94%. The current government rate in place when you consolidate student loans dictates the percentage you will pay on your consolidation loan.
Even those that miss the pre-July opportunity to consolidate student loans will still save money on their monthly bill. When you consolidate student loans, you can spread the payments out over a longer period of time, thus reducing the monthly payment amount. Additionally, ScholarPoint offers interest rate reduction incentives of up to a full 1.5% to help lower the interest rate.
The changes won’t make it harder to secure a loan, just more expensive to pay it back. Those who are paying back existing loans and have not made the move to consolidate student loans will find that their bills are higher after July 1st because of the increased interest due.
Those who have finished college should consolidate student loans immediately in order to lock in today’s lower interest rates. Those still in school can, for a limited time, take advantage of the
“in school” consolidation. In school consolidation is another benefit that will be eliminated once the new bill goes into effect on July 1st. Those who consolidate student loans with ScholarPoint will not only receive the lower interest rate, but can also earn an additional 1.5% interest rate reduction by making payments on time and setting up automatic withdraw. This 1.5% interest rate reduction incentive is available for borrowers both before and after July 1st 2006.
There are plenty of reasons why you may need to expedite the application process: to beat the July 1st deadline, to save money on your next bill, or to finalize your consolidation loan before the end of your grace period when interest rates are 10% lower than during repayment. To shorten the application process from months to weeks, choose a lender who can consolidate student loans through a complete online process. ScholarPoint’s fully online application process does not cost borrowers any additional expediting fees.
Students will no longer be able to consolidate student loans while still in school. Additionally, married couples will no longer be able to consolidate student loans into one combined payment. Not all of the July 1st changes are negative. Graduate students will now have the option to take out PLUS loans in their own names and borrower fees will decrease on a variety of loans. Today’s FFELP fees will be entirely phased out by the year 2010 and Direct Loan fees will steadily be reduced from 4% to 1% during the same time period.
These changes are complicated and it can be a bit difficult to understand how and if these changes might affect your particular situation. ScholarPoint counselors are available between 8am and 5pm Pacific Standard time to answer questions on possible strategies you can implement to save you money in light of the changes. Counselors can be reached by phone at 877-561-8042 or through live chat.
