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To:
Student Aid Activists
Fr: Ellynne Bannon, State PIRGs' Higher Education Project
September 18, 2001
****Borrowers
Should Consider Consolidation to Lock in the New Low Rate
and Benefits****
New interest
rates and benefits could save the typical borrower more than
$2,200 over the life of their student loan. The new interest
rates on Federal higher education loans are 2.2% lower than
last year and are the lowest in years. Borrowers can secure
the new rate by consolidating their loans after July 1, 2001
and before June 30, 2002.
On-time
repayment incentive to expire on September 30th
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
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. The Department will also offers an interest rate reduction,
of .25%, to borrowers who make payments through automatic
bank. 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%.
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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