Students: Consolidate Loans Now To Save Thousands In Interest

Going to college is about to get even more expensive.

At a time when rising tuition costs already weigh heavily on future college graduates and their families, Congress recently passed a Bill raising interest rates on student loans and cutting $13 billion from the federal student loan program. These higher rates promise to have a significant impact on the cost of repaying student loan debt for years to come.

The Bill impacts Stafford loans -popular because they require no credit check or test to qualify-and PLUS loans, available to parents of dependent undergraduate students, regardless of financial need.

Under the new legislation, the interest rate on new Stafford loans will jump to 6.8% from the current rate of 5.3%, while the rate on new PLUS loans will jump to 8.5% from the current rate of 6.1%. Both rates will be fixed.

The average cost of tuition, room and board has climbed at more than double the rate of inflation over the last eight years. Such hikes have also meant skyrocketing student loan debt, which rose more than 70% from $11,400 in 1997 to more than $20,000 in 2005.

The good news for recent grads or students who will graduate this spring is that they CAN still lock in a low fixed rate. But there's not much time. With rate hikes expected to take effect on July 1st of this year, loans must be consolidated by June 30, 2006.

"Time is absolutely of the essence-particularly for this year's graduates," said Frank Ballmann, student loan expert and an executive vice president at consolidation leader Educational Direct. "They'll need to act quickly after graduation to get the pre-July 1 rates, which would rise by over 1.5% on July 1 based on today's interest rates."

Ballmann offers the following tips for students and their parents:

• Students with $20,000 in student loan debt would pay an extra $300 in interest next year, based on the recent rise in interest rates, if they don't lock in the current loan consolidation rate.

• The interest rate for consolidation loans can be locked in at a fixed rate for as long as it takes you to repay your loan.

• Consolidation saves money and time-lowering monthly payments with a single fixed interest rate and simplifying the loan repayment process with one monthly payment.

• There are no fees or credit checks to consolidate student loans; it is free and is a right given to borrowers under the federal loan programs, authorized in the Higher Education Act.

Student Loans 101

Student loans are a helpful accessory when you need to cover costs when deciding to further your education, including housing and tuition. Student loans are there to be financial lifesavers when grants or scholarships leave your school funding a little short. There are federal loans available as well as private student loans that will help with the financial overload. Loan consolidation is another helpful tool when borrowed loans are at the repayment period and you are feeling overwhelmed.

Federally funded student loans can be applied for online. FAFSA is an online free application for federal student aid. This program is available for both students and parents looking to apply for financial help. The application has seven steps that will ask you questions regarding your personal information, your school and plans, and financial information. The Federal Parent Loan for Undergraduate Students, or PLUS, is a loan program that relies on a good credit rating in exchange for helping with the financial needs of your student. This low interest rate program will help cover not only tuition costs, but also housing, books, and supplies. This student loan can be applied for online or through the mail.

Private student loans are loans that are not offered through the federal government. They are available through banks or other financial institutions. This type of loan is offered to both undergraduates and graduates and it helps to cover school expenses when federal student aid does not cover your those leftover expenses. Private student loan applications can be found online and you are subject to a credit review by the potential lender. Your own credit or your parent’s credit is open for review and a co-signer may be needed if either credit rating is not approved for the loan. Obtain an application for your private student loan through your lender of choice or their online website, if applicable.

Student loan consolidation becomes your best friend when the repayment period of your student loans becomes overwhelming. Loan consolidation will give you a break and put your various loans into one low monthly payment instead of various repayment dates with different amounts to pay for each loan. The Sallie Mae foundation is an excellent example of a loan consolidation program. All you have to do is visit their website and you have the option of downloading the application and sending it through the mail or filling it out online and applying for it right that second. It is a simple way to achieve student loan consolidation and it will give you the well-deserved sigh of relief and peace of mind.