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

Director:
Ivan Frishberg

Advocate:
Ellynne Bannon

 

FOR IMMEDIATE RELEASE
Tuesday, June 12, 2001

New Student Loan Interest Rates Are the Lowest in Years
Borrowers should consider consolidation to lock in the new low rate

New interest rates will save the typical borrower more than $1,800 over the life of their student loan according to an analysis conducted by the State PIRGs Higher Education Project. The new interest rates on Federal higher education loans, set to change on July 1, are 2.2% lower than current rates and are the lowest in years.

"This is an excellent opportunity for borrowers to save money on their student loans," said Ellynne Bannon, The State PIRGs Higher Education Advocate. Borrowers can secure the new rate by consolidating their loans after July 1, 2001 and before June 30, 2002.

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 and calculate loan payments based on a percentage of income. Most federal loans can be consolidated either with a private lender or the Department of Education.

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 are the lowest rates in years, borrowers should consider consolidating their loans after July 1, 2001 and before the next year's rates are set. The analysis was based on an average debt of $13,300 over a ten-year payback period. According to the current formula the new interest rates for Stafford loans will be 6.0%.

Lender lawsuit threatens benefits to student borrowers

Another benefit for borrowers encourages timely student loan repayments. Borrowers who consolidate eligible student loans into the Federal Direct Consolidation Loan Program before September 30, 2001 will receive an immediate interest rate reduction of .8%. To keep this benefit beyond the initial 12-month period, a borrower must make the first twelve monthly payments on time. The .8% rate reduction will become permanent once these first twelve payments are made on time. The incentives offered by the Department encourage timely repayment of loans which saves money for taxpayers, borrowers and the lenders. However, benefits like this one may not be available to borrowers for much longer. A group of lenders are suing the Department of Education for making such repayment incentives available to borrowers in the Direct Lending Program. For more information about the lawsuit, visit www.pirg.org/highered/lenderlawsuit.htm.

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 by calling the Department of Education at 1-800-557-7392 or visiting the department's website at: http://loanconsolidation.ed.gov/ .