By: Anita Cherry
The interest rate increase for federal student loan will be to
1.84 percentage points by July 1 2006. This increase in interest
rate is based on the auction of 91 day treasury bills on May 30
2006. The change in interest rate was due to new bill which was
incorporated into the recently passed Deficit Reduction Act of
2005, S. 1932, and was signed into law on Feb. 8 by President
Bush. Congress cut $12.7 billion in student-loan subsidies in
February, as part of the $40 billion Deficit Reduction Act, The
legislation cuts a total of $12.7 billion to the federal student
loan program. This is second largest rate increase in the
student loan history. Student-loan borrowers have benefited from
record-low interest rates for years.
Lock in your federal student loan now
Experts in the industry are now advising students to consolidate
their federal student loans before July 1 2006 and lock in at
the current fixed rate which are charging as little as 4.5
percent. Loan consolidation is the opportunity to combine
student loans together into one big loan and lower the monthly
payments. From an older variable rate debt you can now move to
fixed rate. If you're on track to graduate from college this
spring, you should consolidate your federal student loans before
July 1.If you graduated last year but did not consolidate till
now, do it now. If students consolidate before June 30, the
major benefit is that they can lock in at the current lowest
possible interest rate available. It is a good idea to refinance
when you can get a lower rate you'll save money. It is also
advisable to keep off from offers from banks which will
consolidate both federal and private loans. Always keep both the
loans separate. It is because you will loose repayment discounts
from the federal loan if you combine these two.
Student loan interest rate to increase
Consolidation locks in Students Federal Loan Rates before July 1
Increase. Stafford Loan, carries a variable rate that adjusts
every July 1 by adding 2.3 percentage points to the yield on
three-month Treasury bills. The interest rate for the Stafford
Loan is at 4.70 percent during in-school, grace and deferment
periods, and 5.30 percent during repayment. Stafford loans
disbursed on or after July 1, 2006, the new rates will be fixed
at 6.8 percent. The PLUS loan is at 6.10 percent PLUS loans
disbursed on or after July 1, 2006 will be fixed at 8.5 percent.
By consolidating before July 1, students can avoid the interest
rate hikes and lock in a low, fixed interest rate for the life
of the loan. A year ago, for example, consolidation loans were
charging a mere 2.875 percent. Graduating students who
consolidate during their "grace" period - the six-month window
between graduation and the time they're required to start making
payments on their loans will be able to lock in a rate of 4.75%.
In-school students can also take advantage of loan consolidation
now. After July 1, changes in the federal aid regulations will
not allow in-school students to be eligible for loan
consolidation. Only graduating students will be eligible. You
should be making your first student-loan payment after finishing
school and not six months later.
By consolidating at current rates you will be able to reduce by
the total amount you pay if you do not increase the year or term
of your payment. CONSOLIDATION also allows a student or parent
to extend the repayment term at a lower rate but if you extend
the numbers of years to pay too long the total amount you pay
will be higher. Because of rising interest rates in recent years
consolidation and locking in interest rates helps. If you are
consolidating now do not wait till the last minute because the
lenders will be very busy towards the deadline of June 30th and
you might risk missing the deadline. The paper work takes at
least 30 to 60 days and so it is advisable to do it as soon as
possible. You can consolidate federal student loan only once.
