A bit of rate relief for students
Students borrowing money from the federal government will soon be able to slash their interest rates. Host Bob Moon asks Marketplace's Tess Vigeland how to take advantage of the rate change.
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TEXT OF INTERVIEW
Bob Moon: It's been a challenge finding much good news about student loans lately. More than 100 private providers pulled out of the student loan market this year and now Uncle Sam is coming to the rescue with a beefed up program for federally subsidized loans.
In fact, college could become more affordable for 5.5 million students expected to apply for those loans this year.
Tess Vigeland is the host of our weekend personal finance program Marketplace Money and she's here with the good news: Interest rates on many of those loans are set to fall, starting tomorrow.
Hey, Tess.
Tess Vigeland: Hey Bob.
Moon: So what exactly happens tomorrow?
Vigeland: Well, you know, July 1 is a really big day each year in the student loan world. Interest rates change, as do some of the other terms of various student loans. This year, it's an even bigger day because since last year, we've seen interest rates drop significantly -- as you know, the Fed has been cutting and cutting and cutting -- so if you're looking to get a new loan -- say you're heading off to school in the fall -- your fixed rate on a Stafford is going to be lower than last year's freshmen got. If you're looking to do some loan consolidation, it's also a good time to lock in a lower rate. And Bob, some two-thirds of undergrads from four-year colleges leave school with this kind of debt. As of 2004, the average bill they left with: More than $19,000. So anything you can do pare that back is a good thing.
Moon: OK, give me the good news. What kind of rates are we talking about?
Vigeland: Well, as you know, the student loan world is populated with all kinds of options, from federally subsidized programs to private lending. A couple of the key factors here are that the fixed interest rate for new subsidized Stafford loans will go from 6.8 percent to 6 percent. That's a pretty decent drop. That benefits, again, new borrowers. If you've already got Staffords and you're currently in a loan with a variable rate and that is anyone who borrowed before July 1, 2006, the variable rate will drop to 4.21 percent. You know what it's at now? 7.22.
Moon: OK, but when I hear "variable rate," the hair stands up on the back of my neck here. Does that mean if rates start going up that you could end up paying more?
Vigeland: No. That's another change here that really benefits the student. If you consolidate starting tomorrow under the new 4.21 percent rate, that rate is going to lock in. And here's an important point for those who are in school now or are about to graduate into their six month grace period after they graduate (so they haven't started paying yet): The new rate will be just over 3.6 percent, so it's an even bigger deal for those who are about to graduate. So again, anyone who got these loans before July 1, 2006, this is an opportunity to save quite a bit on interest.
Moon: And if you got your loan after July 1, 2006?
Vigeland: Unfortunately, you are out of luck. The rate is then fixed at 6.8 percent and there is really no reason to bother consolidating.
Moon: Now what about all those lenders who have stopped offering student loans or won't do consolidation loans anymore?
Vigeland: Yeah, you know, this credit crunch, among other things, has prompted all kinds of private banks and other lenders to say, "You know what? We are getting out of the student loan business" and that has not been good for people who want to borrow. One solution -- and again, this is just for your federal loans -- is to consolidate into the government's Direct Loan Program through the Department of Education. You won't be able to do this with your private loans; if you want to consolidate those, you will have to work with the banks, but for your government loans, there is still a government consolidation program that could save you thousands of dollars over the years.
Moon: Something to look into. Thanks, Tess. Tess Vigeland hosts our weekend personal finance program, Marketplace Money.
Comments
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From Santa Cruz, CA, 06/26/2009
I took out loans for graduate school during the last two years. I graduate in July. Why can we not combine our subsidzed loans and get a 3.6% loan. It seems unfair that we are have to pay 6.8% interest while everyone else before July, 2006 can reduce their interest rates. Explain why that date was implemented. Any news about them including us in the deal? Thanks, Flora
From arlington, TX, 07/23/2008
I have been out of school for a year and my loans are sallie mae at 16.5% ...My question is how and where do i find the individuals to consolidate my loans
From Philadelphia, PA, 07/05/2008
Beginning July 1, 2008, borrowers who have consolidated under FFEL have the right to reconsolidate into a Federal Direct Consolidation Loan (FDCL) and participate in the public service loan forgiveness program. This is due to the College Cost Reduction and Access Act. The benefit of reconsolitating into FDCL and then working for ten years in a qualifying public sector job is that after ten years of public work and making monthly payments, the remaining loan balance is canceled. The downside is that the canceled balance is treated as income and income tax must be paid on the balance for the year that the loan is canceled. For info go to www.finaid.org/loans/publicservice.phtml
and www.loanconsolidation.ed.gov/index.shtml
From La Quinta, CA, 07/04/2008
we have FFEL Consolidation program
LOAN PROGRAM: Federal Subsidezed Consolidation Loan
We are paying 7.75 and have $130,000
we keep being told we cannot Re-consolidate. How can we get our rates changed?
From Omak, WA, 07/02/2008
need advice
From San Diego, CA, 07/01/2008
I started college in the fall of 2004, and only graduated last month (i.e. I'm still in the grace period).
So for my first two Stafford loans (for freshman and sophomore years, 2004-2005 and 2005-2006 respectively) the rate will now be 4.21% with the possibility of consolidating to 3.6%?...
...but for my last two Stafford loans (junior and senior year, 2006-2007 and 2007-2008 respectively) they will still be at 6.8%?
Other than the hassle of the paperwork (and trust me, as someone wqho is trying to secure student loans for graduate school, it's a HUGE hassle right now courtesy of the credit crisis) this sounds like a good deal.
For once, Congress isn't selling out my generation to enrich baby boomers!
From Lake Jackson, TX, 07/01/2008
While the focus in the news has been on the many lenders getting out of the federal guaranteed student loan and private loan business, many credit unions are staying in and expanding their loan programs to accomodate students and parents.
Sometimes students and parents don't think about their credit union for providing these type of loans.
07/01/2008
Old liberal argument found here:
The Universities and banks continue their collusionary conspiracies with the result that students are paying much more and getting far less value for their money (& parents money)..
and they come out of University with a watered down education. They are no longer not graduating as educated, enlightened citizens ready to make a difference, but indebted, credit-card using consumers who have huge credit card balances..
We are enslaving a whole generation of lower and middle class young people to massive student debt and it is hurting our society in measureable ways.
Meanwhile, our corporate giants, can't find enough educated students to fill speacialized postions and have to go overseas..
From Palo Alto, CA, 07/01/2008
Trevor, If you are interested in consolidating your federal loans (that you took out prior to July 1, 2006) go to loanconsolidation.ed.gov Good luck, Tim
From Minneapolis, MN, 06/30/2008
Where can I get credible information about consolidating student loans? Is this something I can tackle myself or is this better left to the professionals?
Thank you.
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