Beginning July 1, 2006 interest rates on student loans are set to increase substantially. Anyone with variable rate Stafford and PLUS loans will need to consolidate these loans prior to July 1 to avoid an interest rate shock.
Federal cuts to the student loan program added up to billions. In addition, the Federal Open Market Committee voted to raise interest rates to their highest level in five years. The results are higher student loan interest, of which the rates are set in part by rising bond prices.
This can place a heavy burden on many recent college graduates that are carrying thousands in student loan debt. Many of these recent graduates are getting out on their own for the first time. They have new jobs, new expenses, and student loans to pay off. Increases in average credit card debt held by graduating seniors will also place a huge burden on recent college grads.
It’s a real double-whammy. Not only did their credit card minimum payments increase in January, but their student loan rates are also set to increase in July. Anyone with a variable rate Stafford loan can expect a rate increase. This can make it very difficult for these graduates, who often are not yet earning a substantial salary. Parents too can find it difficult to deal with PLUS loan rate increases.
The deadline is June 30 to make a change. Anyone that has not consolidated their student loans into a fixed rate by that point may be in for a surprise. For more information, visit Sallie Mae for exact rate information.
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