June 2, 2008
By TERRY SAVAGE savage@suntimes.com
The world of student loans just became more complicated, unfair and expensive for some borrowers, while others are about to get a great deal! It all depends on whether you’re borrowing now — or dealing with loans from the past.
Interest rates on older, variable-rate Stafford loans are about to be cut nearly in half — to 3.61 percent from the current 6.62 percent — starting July 1. The cut comes because rates on those older loans are tied by formula to the T-bill auction that took place the last week of May.
But two years ago, Congress changed the student loan program from a variable rate deal based on Treasury bill rates to a fixed rate program, at 6.5 percent.
There’s more good news, and bad. If you’re a graduating senior, you have a once-in-a-lifetime chance to consolidate your student loans and lock in current rates. And you’ll get a great deal if you wait until after July 1. The consolidation rate on variable loans will drop from the current 7.25 percent all the way down to 3.625 percent! This new lower rate is available only for six months after graduation, so you have to act quickly.
But the really bad news is that few, if any, lenders are currently offering consolidation loans — as a result of the current credit crunch! At SimpleTuition.com, there is a very useful online comparison tool for all kinds of student loans. But this year, there are no consolidation loans to compare!
Instead there is a link to the Department of Education’s Direct Loan program — the only consolidator left in the business! But with an estimated $30 billion of student loans eligible for consolidation — from this year’s graduates, and past un-consolidated loans — you can be sure the government will be swamped with applicants! The site: loanconsolidation.ed.gov/borrower/borrower.shtml.
