MTK
06-04-2005, 06:59 PM
Huge interest rate hike coming up soon, better lock in now
http://www.billingsgazette.com/index.php?id=1&display=rednews/2005/06/04/build/business/55-student-loans.inc
Students have till June 30 to lock in loan rates
By ALDO SVALDI
Knight Ridder News
DENVER, Colo. - Michael Rivera owes nearly $30,000 in student loans and has a year left before graduation.
"When I got these loans, I thought the interest rate at the beginning was going to be the rate I had forever," said Rivera, a student at the University of Colorado at Denver.
He plans to save thousands of dollars by consolidating his various loans with one lender before July 1.
Stafford Loans, used by students, and Parent Loans for Undergraduate Students carry a variable interest rate that adjusts July 1 every year.
Borrowers have until June 30 to consolidate and lock in current rates, in the process sidestepping the steepest increases in the 40-year history of the federal student-loan program.
Sallie Mae, the nation's largest student-loan provider, expects rates on Stafford loans in repayment to increase from the current 3.37 percent to 5.3 percent.
Rates for students such as Rivera who consolidate while in school, or in their six-month "grace period" for repayments, will increase from 2.77 percent to 4.7 percent.
Rates on PLUS loans are expected to go from 4.17 percent to 6.1 percent.
For Rivera, consolidating now rather than after graduation could potentially save him $600 a year in interest costs.
The U.S. Department of Education is expected to confirm those interest rates later this week, said Sallie Mae spokeswoman Erin Korsvall.
"The one thing we know with certainty is that rates will go up in 30 days," said Mark Brenner, president of College Loan Corp.
Many borrowers remain unaware they have to apply to consolidate their loans or of the looming deadline for doing so, Brenner said.
Borrowers with a single lender must apply with that lender for a consolidation first, while those with more than one lender can shop around.
Depending on the lender, consolidation applications can be made over the phone, online or in writing.
Besides locking in a fixed rate, consolidating student loans can stretch out the repayment terms from 10 years to up to 30 years, depending on the size of the loan.
With federal rules setting rates and repayment terms, lenders differentiate themselves by the "benefits" they offer.
Many lenders offer a 0.25 percentage-point discount on interest rates for automatic payment deductions.
Lenders also typically offer discounts for timely payments but can differ in how they do it.
College Loan provides a cash rebate worth 1 percent of the loan balance for borrowers who make their first nine payments on time, Brenner said.
Minneapolis-based U.S. Bank, in contrast, lowers the loan interest rate by 1 percentage point after 36 timely payments, said Russ Kruse, manager of student banking.
Lenders shouldn't charge a fee for loan consolidations, Brenner said. But lenders do make their money in other ways.
For one, the loans are guaranteed against default by the federal government, which also covers the gap between the variable interest rate in place and the fixed rate that borrowers lock in, Kruse said.
Bankers also see the loans as a way to attract new customers and establish a long-term banking relationship, he said.
Before consolidating, borrowers should consider the payment amount they can reasonably afford and gather information on all their loans and who provided them.
For more information, they can contact their current student loan providers or visit www.loanconsolidation.ed.gov.
http://www.billingsgazette.com/index.php?id=1&display=rednews/2005/06/04/build/business/55-student-loans.inc
Students have till June 30 to lock in loan rates
By ALDO SVALDI
Knight Ridder News
DENVER, Colo. - Michael Rivera owes nearly $30,000 in student loans and has a year left before graduation.
"When I got these loans, I thought the interest rate at the beginning was going to be the rate I had forever," said Rivera, a student at the University of Colorado at Denver.
He plans to save thousands of dollars by consolidating his various loans with one lender before July 1.
Stafford Loans, used by students, and Parent Loans for Undergraduate Students carry a variable interest rate that adjusts July 1 every year.
Borrowers have until June 30 to consolidate and lock in current rates, in the process sidestepping the steepest increases in the 40-year history of the federal student-loan program.
Sallie Mae, the nation's largest student-loan provider, expects rates on Stafford loans in repayment to increase from the current 3.37 percent to 5.3 percent.
Rates for students such as Rivera who consolidate while in school, or in their six-month "grace period" for repayments, will increase from 2.77 percent to 4.7 percent.
Rates on PLUS loans are expected to go from 4.17 percent to 6.1 percent.
For Rivera, consolidating now rather than after graduation could potentially save him $600 a year in interest costs.
The U.S. Department of Education is expected to confirm those interest rates later this week, said Sallie Mae spokeswoman Erin Korsvall.
"The one thing we know with certainty is that rates will go up in 30 days," said Mark Brenner, president of College Loan Corp.
Many borrowers remain unaware they have to apply to consolidate their loans or of the looming deadline for doing so, Brenner said.
Borrowers with a single lender must apply with that lender for a consolidation first, while those with more than one lender can shop around.
Depending on the lender, consolidation applications can be made over the phone, online or in writing.
Besides locking in a fixed rate, consolidating student loans can stretch out the repayment terms from 10 years to up to 30 years, depending on the size of the loan.
With federal rules setting rates and repayment terms, lenders differentiate themselves by the "benefits" they offer.
Many lenders offer a 0.25 percentage-point discount on interest rates for automatic payment deductions.
Lenders also typically offer discounts for timely payments but can differ in how they do it.
College Loan provides a cash rebate worth 1 percent of the loan balance for borrowers who make their first nine payments on time, Brenner said.
Minneapolis-based U.S. Bank, in contrast, lowers the loan interest rate by 1 percentage point after 36 timely payments, said Russ Kruse, manager of student banking.
Lenders shouldn't charge a fee for loan consolidations, Brenner said. But lenders do make their money in other ways.
For one, the loans are guaranteed against default by the federal government, which also covers the gap between the variable interest rate in place and the fixed rate that borrowers lock in, Kruse said.
Bankers also see the loans as a way to attract new customers and establish a long-term banking relationship, he said.
Before consolidating, borrowers should consider the payment amount they can reasonably afford and gather information on all their loans and who provided them.
For more information, they can contact their current student loan providers or visit www.loanconsolidation.ed.gov.