Financial advisers are recommending that students and recent graduates consolidate their federal student loans now to avoid an almost 2 percent hike in interest rates -- the biggest in the loan program's history.
Scheduled to go into effect July 1, variable interest rates on federal Stafford loans issued after July 1998 will rise to 4.7 percent for in-school and grace borrowers and to 5.3 percent for borrowers currently in repayment. Interest rates for Parent PLUS loans issued after July 1998 will jump to 6.1 percent. However, according to Alena Charles, marketing manager at College Loan Corporation, people who consolidate now can lock in current fixed interest rates, which are at historic lows.
"If an AAFP member has not locked in the interest rate on student loans by July 1, the rate will increase almost 2 percent," said Charles, whose company has partnered with AAFP to provide loan consolidation services. "Not consolidating could cost thousands of dollars in interest over the life of your student loan and increase your monthly student loan payments."
The AAFP Federal Consolidation Loan Program's current rates are as low as 2.875 percent for those using conventional payment methods and as low as 2.63 percent for those who use automated debit payment plans. Also, the program offers a 5 percent cash-back offer, up to $4,000, for borrowers who make their payments on time each month for 48 consecutive months.
Graduating seniors who consolidate their loans during the six-month grace period between completion of studies and their first payment date will receive a 0.6 percent interest-rate reduction from the government, said Charles.
"Consolidating during the grace period is a great to save interest over the life of the loan," she added.
AAFP members can visit the College Loan Corporation Web site to complete an online application and to read more about the program; call (888) 972-1126 with questions. To speak with an AAFP member services representative about the program, call (800) 274-2237, Ext. 6814.
