Interest Rate Raised
In July of 2006, the law changed and thereby raised the
federal student loans. Due to the change in the American
economy, President Bush cut the amount of money that was
being given to student loans. The interest rate increase
for federal student loan raised 1.84 percentage points
in 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. Unfortunately, this affects all
people who are currently looking to consolidate their
debt and pay for student loans.
Part of the benefit of
student loans is that those who
use them pay low interest rates because it is such a
necessity for most students. Student loan borrowers have
benefited from record-low interest rates for years. 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. Students who consolidated before
June 30 benefited because they could 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
will save money. It is also advisable to keep off from
offers from banks that 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.
The 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. People who missed the deadline were gravely
affected by the increase.
When taking out student loans, there is an initial grace
period. This grace period is the six-month window
between graduation and the time they're required to
start making payments on their loans. Once they do this,
they will be able to lock in a rate of 4.75%. After July
1, changes in the federal aid regulations do not allow
in-school students to be eligible for
loan
consolidation. Only graduating students are now
eligible. 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. Student loan
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. You can consolidate federal student
loan only once. Therefore, it is important that you do
this as soon as possible. Of course, the laws have been
changed already, but it is a good idea to take care of
things before they change again.