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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/
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