Student Loan Rates to Rise Only Slightly

[Jun 16, 2007.]

There's good news on the interest rate front for college students. The rates on the two major federal student loan programs will increase only slightly this year, making a college education a little more affordable.

Beginning July 1st, interest rates for previously held Stafford and PLUS loans will increase 0.08 percent—a low amount by any calculation. For students still in school, Stafford loan interest rates will increase to 6.62 percent, with PLUS loan rates increasing to 8.02 percent. Graduates who are already paying on their Stafford loans will face an interest rate of 7.22 percent, according to the student loan giant Sallie Mae.

Parents will also be able to save money by consolidating PLUS loans prior to July 1 st. The interest rate change will only impact those loans made before July 1, 2006. The interest rates for subsequent loans have been fixed at 6.8 percent for the Stafford and 8.5 percent for the PLUS. Students with Stafford loans who consolidate prior to July 1 will be able to lock in a grace period rate of 6.625 percent. The grace period extends six months after college graduation.

One lender estimated that a 2007 graduate with $20,500 in loans could save $790 in interest over the ten year life of the loan through consolidation during the grace period. By extending the loan period to 30 years, monthly payments can be cut in half. However, you can also end up paying more in interest over time if you lengthen your repayment period.

Students may also find that the difficult act of managing their student loans can be simplified through consolidation. That's because it's much easier to keep track of one monthly loan bill than several. Since recent college graduates may have difficulty managing their overall household budget, consolidation, many financial experts say, simply makes sense.

Julie Ann Amos
June 16th 2007

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