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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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Vashawn Smith said he's taken a number of phone calls from lenders who want to sell him a student loan consolidation plan for his master's degree program. Smith said he gets about a phone call per day and letters in the mail. All the offers encourage him to lock in his $23,000 in loans at a lower rate.

University of Nebraska-Omaha finance professor David Volkman said lower rates are the biggest advantage of consolidation.

"There's all kinds of offers out there, and the student has to be careful and evaluate the offers carefully. "The student needs to look at: Will there be closing costs? There are lenders out there that are saying no closing costs. Then, there are other lenders out there that are offering benefits after you consolidate."

Volkman said students should shop around.

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