For
Immediate Release:
June 4, 2002
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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.
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