Variable loan interest rates for student loans to increase July 1

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Financial aid interest rates on loans borrowed prior to July 1, 2006, will increase soon. Loans that were borrowed at a 6.54 percent interest rate will increase to 6.62 percent, said Judy Bonjour, assistant vice president of student loans at Kansas State Bank.

Students who borrowed after July 1, 2006, will have a fixed interest rate of 6.8 percent because of the Deficit Reduction Act of 2005. The act, which Congress passed Feb. 1, 2006, cut more than $11 billion from federal student loan programs and changed laws regarding student loan consolidation.

Student loan consolidation allows graduates to combine all of their federal loans into one payment, said Larry Moeder, K-State admissions and student financial assistance director. Moeder said prior to this year, students still enrolled in college could consolidate and lock their interest rates. Because of changes in federal regulations, this option is no longer available, he said.

As students graduate, Moeder said he recommends they research several different consolidation companies before choosing one. Numerous services exist within consolidation plans, including payment through automatic withdrawal from a checking account.

About 55 percent of K-State students take out financial aid, averaging a debt of $18,000 per student, Moeder said.

While many companies offer student loan consolidation services, Bonjour said she recommends students consolidate with larger companies like Sallie Mae and the U.S. Department of Education. In order to consolidate, which can be done online, students must have borrowed at least $5,000 and will need a list of their loans and their interest rates, Bonjour said.

“There aren’t any additional charges, and one of the benefits is that once you consolidate your loans, they usually lead to a lower monthly payment,” she said.

Despite lower monthly payments, Bonjour said students ultimately pay more interest since the payments are in smaller increments.

Students who choose graduate school after receiving their undergraduate degree will have interest fixed at the rate for that year, Bonjour said.

Some students choose to defer consolidation of their loans after graduation. Tara Doerfler, May 2007 graduate in family studies and human services, said she plans to wait on consolidating her loans since she will attend graduate school at the University of Kansas this fall.

“I’ll definitely consider consolidation because it makes life easier,” said Doerfler, who has about $10,000 in student loans from Sallie Mae and the Bank of America. “I’d like to consolidate them and make payment plans dependent on where I’m at, and I plan to have a full-time job so I can make more than the minimum payment.”

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