On July 1, 2006 the interest rates
on outstanding federal student loans are expected to
rise to just over 7 percent—the highest rate in six
years—and the rate on outstanding federal parent loans
are expected to rise to about 7.8 percent. Student
borrowers who consolidate before July 1st may be
eligible to lock in a rate as low as 4.75 percent over
the life of their loan(s)—which would save the typical
undergraduate borrower almost $3,500 over the life of
his or her loan. But students and parents must act
quickly to ensure that they can lock in these lower
rates.
What is loan
consolidation?
Students and parents who have taken out at
least one loan through the federal government's Federal
Family Education Loan (FFEL), Direct Loan or Perkins
Loan programs may be eligible to lock in a low fixed
rate over the life of their loan(s), but only if they
consolidate by June 30, 2006.
Why should
student and parent borrowers consider consolidating
before July 1, 2006?
On July 1st the interest rates on outstanding
federal student loans are expected to rise to just over
7 percent—the highest rate in six years—and the rate on
outstanding federal parent loans are expected to rise to
about 7.8 percent. Student borrowers who consolidate
before July 1st may be eligible to lock in a rate as low
as 4.75 percent over the life of their loan(s)—which
would save the typical undergraduate borrower almost
$3,500 over the life of his or her loan. Parent
borrowers who consolidate before July 1st may be
eligible to lock in a rate as low as 6.1 percent over
the life of their loan(s).
Consolidation may also deliver other
benefits to borrowers such as eliminating the need for
dealing with multiple lenders or allowing borrowers to
enroll in payment plans based on a percentage of their
income. Borrowers who make a set number of on-time
repayments or who make payments through automatic
banking can obtain additional interest rate
reductions.
How can I consolidate
my loans?
If you have a Direct Loan through the Department
of Education you can call 1-800-557-7392 or apply
on-line at http://www.loanconsolidation.ed.gov/.
If you have a loan through the FFEL program (a
bank-based loan) you can contact one of the companies
that own or service your student or parent
loan(s).
If you have loans
with more than one lender you can chose to consolidate
through the Department of Education or with any lender
that provides federal consolidation
loans.
When is the deadline
to consolidate and lock in a low fixed
rate?
The deadline is June
30, but you should apply before then to beat the rush of
applications.
Can student borrowers
consolidate their loans while they are still
in-school?
Before July 1st,
you may be eligible to consolidate your loans while
you're still in school. Consolidating while you're still
in school will let you lock in the grace-period rate of
4.75 percent (borrowers who consolidate their loans,
before July 1st, and while in repayment will lock in an
interest rate of 5.375 percent). However before taking
this option, borrowers should make sure that their
lender will let them defer their payments until
graduation.
Can borrowers
reconsolidate their loans?
If
you have already consolidated your loans, you cannot
consolidate again.
Can borrowers
consolidate Perkins loans?
Students who’ve borrowed Perkins loans, which
carry a fixed interest rate of 5 percent and offer loan
forgiveness to graduates working in certain fields such
as teaching or social work, should carefully consider
whether or not consolidation is right for them. If
Perkins loan borrowers consolidate their loans, they
lose their loan forgiveness
benefits.
How are Democrats
working to make college more affordable?
Earlier this year, the Republican-led
Congress cut $12 billion out of the federal student aid
programs in order to help finance tax breaks for the
wealthiest Americans. As a result of this Republican
Raid on Student Aid, college is even further out of
reach for millions of American students and their
families.
In contrast, Democrats continue to
work to make college more affordable. House Democrats
introduced legislation, the Reverse the
Raid on Student Aid Act (H.R. 5150), that would cut
interest rates in half from 6.8 percent to 3.4 percent,
for students with subsidized loans - which go to
students with the most financial need - and from 8.5
percent to 4.25 percent for parent borrowers, starting
in July 2006.*
Under H.R. 5150, the typical
undergraduate student borrower with $17,500 in student
loan debt would save $5,600 over the life of his or her
federal college loans.
* Beginning on July 1, 2006 all NEW
student and parent loans will be set at fixed rates of
6.8 percent for undergraduate students and 8.5 percent
for parent borrowers.