By Jessie Elder
Student loan rates will increase dramatically July 1, a jump that could cost students thousands of dollars if they don”t consolidate now.
Stafford Loan interest rates will rise from 5.3 percent to 7.14 percent, while PLUS Loans for parents will rise from 6.10 percent to 7.94 percent – both an increase of 1.84 percentage points. These new, higher rates were recently released by the U.S. Department of Education.
This is the highest the interest rates have been in 6 years, and the second largest rate increase in history said Amanda Covington, Director of Communications at Utah Higher Education Assistance Authority.
Student loan rates are determined the last Monday in May, when U.S. Treasury bills are auctioned.
“Students who have had loans in the past, students who already have Stafford loans may want to contact their student loan guarantee agency to investigate whether it would be a good idea to consolidate their loans right now to lock in the lower interest rates,” said Todd Martin, BYU Financial Aid Officer and Accredited Financial Councilor.
Although it”s hard to put a specific dollar amount on the savings, Covington said a student with a $20,000 loan could save more than $5,000 dollars in interest over the life of the loan by consolidating their loans.
For many students, especially those just graduating and not yet in their careers, $5,000 is a lot of money, making it imperative for students to look into consolidating now, Covington said. Once a loan is consolidated, the interest rates will be fixed for the life of the loan.
Consolidation may not be the best choice for all students with loans, however. BYU senior James Hattaway said after looking over his options, it seemed like the best option to not consolidate his student loan.
“It made more financial sense for me, and I didn”t have time to consolidate down,” Hattaway said. “It just wasn”t worth it to me.”
The one potential negative of consolidating now is giving up the six-month grace period, putting the borrower right into repayment, Martin said.
“However,” Martin said, “students can use what are called deferments and forbearances to delay their payments until they”re out of school anyway, so it can act like a grace period.”
In order to lock in the lower rates, students are urged to apply and consolidate by June 30. For more information, Covington urges students to visit the Utah Higher Education Assistance Authority Web site at www.uheaa.org.
