College loan interest rates rise at an all time high

[dsc]

http://business.bostonherald.com/businessNews/view.bg?articleid=141519

Student-loan giant Sallie Mae and other lenders yesterday hiked rates about 1.84 percent for the coming fiscal year on two key programs: Stafford loans and PLUS loans.

Stafford loans go to graduate and undergraduate students to help pay tuition, books and other expenses. PLUS loans help parents cover a child’s college expenses.

By law, Sallie Mae and other lenders set rates on Stafford loans about 2 percent higher than whatever 91-day U.S. Treasury bills fetch at the end of May. (PLUS-loan borrowers pay 3.1 percentage points above T-bill rates.)

Yesterday, T-bill rates hit 4.84 percent - 1.84 percentage points above where they stood a year ago and 2.77 percent above 2004 levels.

Sallie Mae Vice President Pat Scherschel said rates shot up over the past two years because the Federal Reserve has been tightening credit in a bid to prevent inflation.

end of quote

Tbis was part of a deficit reduction bill passed in 2005 but of course we are still going to eliminate the estate tax if the Republicans have their way.

[LiberalEsto]

1. whose deficit is being reduced here?

Certainly not the deficits/debts run up by kids trying to get a decent college education.

[Selatius]

2. Ouch, I have Stafford Loans at the moment

It's not easy paying off loans in general, but it's less so when interest rates are higher.

Maybe I should enlist since we spend more on defense than on public education anyway. :sarcasm:

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3. Investigate consolidation

that seems to be the only way to avoid this.

[central scrutinizer]

4. Consolidate - immediately

I think the deadline is July 1 - after that date you are stuck.

[Selatius]

5. Can you consolidate before you finish school?

Like if you only took out--I'm just throwing out numbers here--10,000 worth in loans now but will end up taking out 20,000 by the time you finish, can you simply roll in the next 10,000 you will take in loans into the first 10,000 you consolidated and achieve the same fixed interest rate for the whole amount or just with the first half?

[GaYellaDawgDem]

9. Well it's not quite that simple...

For now it might be possible but the loopholes that allow in-school borrowers to consolidate will be closed effective July 1, 2006 by the Deficit Reduction Act of 2005. There's an excellent discussion about loan consolidation options and consequences on the FinAid.org website at http://finaid.org/loans/consolidation.phtml. Not all in-school borrowers will be able to take advantage of this limited opportunity depending on how much they've borrowed to date and from whom they've borrowed.

As a long-time financial aid administrator (25 years) and a former borrower back when Stafford Loans were called Guaranteed Student Loans, I'd like to also point out that interest rates are not really at an all-time high. In fact, they've been at an all-time low for the past few years. When my loans were in repayment the interest rate was 8% for the first four years and 10% thereafter. And I should also point out that I'm not an advocate for any lender whatsoever, but in their defense (and for sake of clarity), interest rate formulas are determined by Congress and not specific lenders or servicing agencies such as Sallie Mae.

I'd also suggest to the $35,000 borrower in the article that she should have her payment amount reviewed if that is truly her base amount...at the expected 7.14% rate the monthly payment should only be about $410. My guess is that her loans include some unsubsidized loans that accrued interest while she was in school thus making her base amount a bit higher than $35,000.

As a student advocate I have for years tried to educate students on responsible borrowing and I wholeheartedly agree with the last comment in the Boston Herald article...plan ahead. While many of us in the financial aid field rally for higher grant funding, mostly unsuccessfully, education loans are there for students who need help in achieving their educational goals and in most cases are a bargain compared to other lending options. At the same time current and prospective students definitely need to look ahead at their earning potential in their chosen fields to insure they are able to pay back student loans without starving (or as one student told me he felt like he was mortgaging his life away). Alternately they should also look for institutions of higher learning where they might be able to achieve their educational goals without incurring staggering amounts of debt before they even enter the workforce.

If you've read this far, thanks! I hope some of this info will help!

[lindisfarne]

11. In school consolidation leads to a .6% reduction in rate for loan.n /t

[marmar]

6. I'm convinced that this administration wants to discourage...

the masses from getting a college education AND from traveling abroad. Anything that might expand minds and broaden perspectives is clearly considered the enemy of this administration.

[Avalux]

7. Yep - keep us dumb and god-fearing.

Much easier to control us when we don't know any better and never ask any questions.

[Deja Q]

8. K&R - this is one reason why brainrot is occurring.

There are others, most of which point back to corporate greed. (We are all to blame for respective reasons, but the core of the problem is with the supply. Particularly in a supply-side economy.)

[lindisfarne]

10. My loans were fixed at 8% 20 years ago; not sure why all the fuss.

Live frugally. I paid off $10,500 20 years ago in 1.5 years. And I was making about $16.000 annually. No car.