Washington, D.C. – Congressman G. K. Butterfield warns that a deadline looms at the end of the month for lessening the burden of repaying federal student loans.
“Unfortunately, time is running out on low-interest loans for students and their parents,” Butterfield said.
On July 1st, interest rates on outstanding federal student loans will rise to just over 7 percent while the rate on outstanding federal parent loans will rise to about 7.8 percent. Also, all new student and parent loans will be set at fixed rates of 6.8 percent for undergraduate students and 8.5 percent for parent borrowers.
Butterfield said that students should consider consolidating their loans before July 1st to lock in a rate as low as 4.75 percent over the life of the loan. Similarly, parent borrowers may be eligible to lock in a rate as low as 6.1 percent over the life of a loan. On a balance of $20,000, the lower student loan rate would mean a monthly payment that’s $22 lower than waiting until after July 1. Over the life of the loan, the new rate would add $5,123 in additional interest.
Butterfield explained that consolidation may also deliver other benefits to borrowers such as eliminating the need for dealing with multiple lenders or allowing borrowers to enroll in payment plans based on a percentage of their income. Borrowers who make a set number of on-time repayments or who make payments through automatic banking can obtain additional interest rate reductions.
Butterfield said that he has set up a page dedicated to information about loan consolidation on his Congressional web site at www.house.gov/butterfield.
The changes are the result of the impact of the Deficit Reduction Act of 2005, which was approved by Congress and signed into law by President Bush earlier this year. Over the next five years, the measure cuts more than $12 billion in assistance to college students in aid and loan support. Butterfield voted against those cuts.
Previously, federal student loans were issued using variable rates, which fluctuated with inflation. Currently, the interest rate for a student loan is 5.3 percent.
Butterfield said that this increase is especially difficult because the cost of education has skyrocketed in recent years, and so has the debt load that students and parents are forced to carry.
“As college costs continue to rise,” he said, “interest rates matter more and more.”
The volume of federal loans has more than doubled – from $20.7 billion to $49.1 billion – in the last decade. This represents a 137 percent increase in student debts.