State PIRGs' Higher Education Project
218 D Street SE
Washington, DC 20003
(202) 546-9707

Director:
Ivan Frishberg

Advocate:
Ellynne Bannon

 

For Immediate Release:
June 4, 2002
Contact:
Ellynne Bannon
202/546-9707 ext 349

Student Loan Interest Rates Plummet To All-Time Low

New student loan interest rates will save the typical borrower about $2,800 over the life of their loan, according to an analysis by the State PIRGs' Higher Education Project. The new interest rates on Federal student loans, set to change on July 1, are almost two percent lower than current rates and are the lowest in the history of the student loan program.

"This is great news for student borrowers. These new low rates are an excellent opportunity to save money, " said the State PIRGs' Higher Education Advocate Ellynne Bannon. Borrowers can secure the new rate by consolidating their loans from July 1, 2002, when the new rates take effect, to June 30, 2003.

The new interest rates come at a time when many students and families are struggling to cover college costs. Sixty-four percent (64%) of all students currently borrow to finance their college education and the average student loan debt has nearly doubled to $16,928 over the past eight years. In addition, almost half of all full-time students are working 25 or more hours a week to cover college costs.

Last month the Bush administration backed a proposal that would have changed consolidation loan interest rates from fixed to variable, just as the rates were scheduled to drop to an all-time low. This proposal would have cost student and parent borrowers thousands of dollars. Ultimately, the Bush administration withdrew this anti-consumer proposal, due in large part to the work of the state PIRGs.

In addition to allowing borrowers to refinance their loans at better rates, consolidation may deliver other benefits depending on the borrowers' circumstances. Borrowers can eliminate the need for dealing with multiple lenders, extend their repayment period, or enroll in payment plans based on a percentage of their income. The Department of Education also offers interest rate reductions to borrowers who make payments through automatic banking. Most federal loans can be consolidated either with a private lender or the Department of Education.
Recent graduates should consider consolidating during their in-school or in-grace periods to lock in an even lower interest rate over the life of their loan. Consolidating during the in-school or in-grace period can mean a fixed rate of 3.525% over the life of the loan.

Interest rates change from year to year, so there is no guarantee that locking in the new rate will be the best deal. But given that these will be the lowest rates in the history of the program, borrowers should consider consolidating their loans after July 1, 2002 and before the next year's rates are set.

PIRG's analysis was based on an average debt of $16,928 over a ten-year payback period with a 4.125% interest rate. Each year, on July 1st, the interest rates on federal student loans are reset.

Borrowers interested in consolidating their loans with the lower interest rate formula should contact their private lender or the direct loan program. More information about direct loan consolidation is available from the Department of Education (1-800-557-7392, http://loanconsolidation.ed.gov/) or at http://www.pirg.org/highered.

The State PIRGs are non-profit, non-partisan public interest advocacy groups. The Higher Education Project was established in 1994 to secure more student aid, with a focus on additional grants, lowering the cost of borrowing, and better service to students in the federal financial aid system.