Record low loan rates hit campus

A good time for students to borrow, consolidate

On The Money

Your Money

July 04, 2004|By Richard Burnett

College students and parents, listen up: Interest rates on student loans have descended to yet another historic low.

It has become a constant refrain in recent years -- almost a cliche, but still true. Now is the best time to consolidate loans or borrow money, locking in bargain-basement rates.

Even as the prices of mortgages and other consumer loans are climbing, rates on government-guaranteed student loans continue to fall, thanks to a formula based on the rate of the short-term Treasury bill.

As of July 1, the fixed rate on Stafford loans (the cheapest and most common student loan) slipped to a 39-year low of 3.37 percent for the next 12 months, down from 3.42 percent. PLUS loans (Parent Loan for Undergraduate Students) check in at 4.17 percent, down from 4.22 percent.

Those same loans went for 8.19 percent and 8.99 percent, respectively, four years ago.

And if the low rates aren't enough to make you act now, consider this sobering reality: Congress is thinking of eliminating fixed-rate student loans.

That could save the government billions in subsidies while shifting more costs to students and parents.

Supporters say it's common sense for the government, which foots much of the loan costs, to insulate itself from potentially exorbitant costs triggered by low fixed rates. Instead, they say loan consolidation should only occur with variable interest rate loans.

Critics disagree.

"Nationwide, tuition is rising and student debt for graduates is rising, while there is no increase in financial aid," said Luke Swarthout, an analyst for U.S. Public Interest Research Group, a consumer advocacy organization. "Being able to take advantage of low fixed-rate loans can help students handle their debt load better."

But for now, in most cases, the consolidation issue should be clear. If you haven't already done it, ditch the old higher interest loans in favor of the low fixed rates.

Of course, there are some exceptions. Low-income students with Perkins loans should avoid consolidating because they could lose the benefits of that program. And students in the final year of their loans could save just as much by paying a little extra each month on the principal.

But for most people, conditions are ripe to examine the fixed-rate option.

Often, the process is simple. Call your lender and ask for an application to begin the consolidation process. If you have only one loan or all your loans with one lender, that may be your only option. Student loan regulations give that lender the right of first refusal. But if your lender declines to offer loan terms, you can play the field.

That means doing a lot of homework before deciding the best course of action. There are many sources to check out, from government lenders, banks and private student loan finance firms to Sallie Mae, the nation's largest student loan provider. There are discounts, incentives and other offers to consider.

Student loan consolidation has become a multibillion-dollar business in recent years, and the competition is fierce. Some deals have hidden fees or misleading terms. Always get offers in writing and check out the lender you're talking to by calling the Better Business Bureau or using

The bottom line, however, is that sorting through the options could pay off handsomely in lower monthly payments and thousands of dollars in savings over the life of the loan.

More information can be obtained at the Web sites of the U.S. Department of Education and Sallie Mae as well as private sources such as College Loan Corporation, Collegiate Funding Services, Nelnet and American Collegiate Financial Services.

Richard Burnett is a staff writer for the Orlando Sentinel, a Tribune Publishing newspaper.

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