Stafford Loans
College students who are looking at taking out student
loans are probably researching all of the different
options in order to discover what student loan will be
best for them. On type to consider is federal student
loans are also called Stafford loans. With these loans,
the government resetting the interest rate on those
loans every July based on market interest rates. The
benchmark interest rate used by the government, the
ninety day treasury bill rate, has risen approximately
thirty percent since July 2005 and the Federal Reserve
is expected to push market interest rates even higher
between now and July 1.
By consolidating student loans prior to July 1, 2006,
students can lock in a single, historically-low fixed
rate on their loans which are currently as low as 4.75%.
The fixed rate can drop even lower to 3.5%, after taking
into account additional benefits offered by many
consolidation lenders. In-school consolidation of
student loans may be a very attractive option for
returning medical, law and b-school students with high
loan balances. Consolidating student loans now to lock
in current lower rates can result in thousands of
dollars in interest savings over the life of the loans
consolidated. For many graduate school borrowers this
interest savings will far exceed even losing a full
six-month’s worth of government interest subsidy during
the foregone grace period.
Students could avoid paying more on their loans on July
1 by consolidating student loans under the Federal
Student Loan Consolidation Program. Recently, borrowers
have been able to shave thousands of dollars in interest
from their loans by consolidating loans at record low
rates. It is good to know that students who will be in
school beyond July 2006 can also take advantage of the
Federal Student Loan Consolidation Program to lock in
today's low rates, ahead of the July 1 increase in rate.
In the past, students usually had to graduate before
they could consolidate their loans under the
federal
program. However, in the last year the U.S. Department
of Education has confirmed that continuing students are
eligible to consolidate their loans while still in
school. Congress eliminated the "in-school"
consolidation option for students on July 1, 2006.
Just as with a typical consolidation loan, repayment on
an in-school consolidation loan does not begin until
after the borrower leaves
school, but in-school
consolidation does require the borrower to waive the
six-month grace period following school, during which
time no payments are required. As a result, the loans
consolidated will enter immediate repayment, unless the
borrower applies for a deferment or forbearance of the
loan payments. During periods of deferment or
forbearance the borrower is not required to make
payments on the loan. During deferment, the federal
government continues to pay the interest on the
subsidized portion of the consolidation loan, while
during forbearance interest accumulates on both the
subsidized and unsubsidized portions of the
consolidation loan. The practical effect of waiving the
grace period is that the borrower will, unless granted a
deferment, lose six months of government-subsidized
interest payments on his or her subsidized federal
loans.