Wednesday, December 28, 2005

Consolidate Student Loans Now To Save Money

While this doesn't effect me since I'm still 18 years away from college, for everyone who has gone through school and picked up loans along the way (something that I'm trying to avoid doing by saving early), congress has change the law on Safford and PLUS Loans. If you are carrying student loans and are considering consolidating them, you now have a time-limit: July 1. As part of its $40 billion budget cutting effort, congress has raised the interest rate of Safford loans to 6.8% (one of the more popular student loans because borrowers don't have to show a financial need to get one) and has made this rated fixed, not adjustable as it currently is.

This change can have a significant affect on the amount you pay. If you currently have a Stafford loan, you can consolidate and lock in a rate of 5.375% for its life. If you happen to still be in your grace period, you can lock in a 4.75% rate.

Parents of students will also have to pay higher rates under the new law. The rate for PLUS loans (Parent Loans for Undergraduate Students) will become a fixed rate of 8.5%. PLUS loans currently sit at 6.1% and are variable.

The new rates will increase the cost of college by quite a bit. If you currently have a Stafford loan balance of $20,000 and paid the new 6.8% rate compared with the current low rate, it would cost more than $2,000 more in interest over a standard 10-year life of the loan. With PLUS, parents would have to pay nearly $3,000 more.

With interest rats not likely to fall between now and July and with a chance that they will rise, now is the time to get low rates locked in. If you have student loans and you haven't consolidated them, be sure to make that one of the first New Year's resolutions that you complete.