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Student loan interest rates set to increase
Today is the last day student loan holders will have to consolidate their debt without feeling the hit of the nearly 2-percent increase in interest. The Federal Stafford loan rate will rise 1.93 percent July 1 and parent loans for undergraduate students (PLUS) will rise 2.4 percent, marking the largest jump since 2000. The change stems from a new bill that was incorporated into the Deficit Reduction Act of 2005, S. 1932, according to a press release from the Montana Guaranteed Student Loan Program.Ron Muffick, director of business relations and programs for the MGSLP, said, "Because of the interest rate change effective July 1, I encourage borrowers to contact their lenders to explore all of the options for repayment including consolidation."The average student debt for a Montana borrower is $20,000, quite less than the national level of $50,000, according to the American Council on Education."The rate increases mean higher interest payments for students and graduates over the life of their loan," said Jim Stipcich, president of Student Assistance Foundation.
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Student loan lessons
Since late 1992, the two largest federal student loan programs have come with a variable interest rate. But as of Saturday, new Stafford loans are fixed at 6.8 percent and new PLUS loans will be 8.5 percent, a benefit if interest rates continue to rise. Variable rates on loans issued before Saturday that have not been consolidated will be reset once a year.
Higher loan limits
Before, freshmen could borrow up to $2,625 in Stafford funds. The new limit will be $3,500 starting July 1, 2007. Caps for sophomores will go from $2,500 to $4,500, and graduate and professional students will be able to borrow $12,000 a year instead of $10,000.
Because Americans are relying more on loans for college, the higher caps could be a big boost.
Declining origination fees
Fees for taking out a student loan will decline and, in some cases, disappear by 2010.