Student loan rates likely to fall below 4 percent
By Sandra Block
USA Today
Rates on federal student loans, already at historic lows, could fall below 4 percent this summer, saving some college borrowers thousands in interest over the life of their loans.
The reduction in monthly payments will be a welcome break for graduates entering a tight job market.
The average student debt load has doubled in the last decade to nearly $17,000, according to the Public Interest Research Group.
Unless rates for short-term Treasury bills rise in the next few weeks, which appears unlikely, the student loan rate on July 1 will fall to about 3.4 percent from 4.06 percent, loan analysts say. "We're at lows that haven't been seen since the Eisenhower administration," said Patricia Scherschel at Sallie Mae, which covers student loans.
Interest rates on federal Stafford loans are recalculated annually on July 1 based on a formula tied to the interest rate for short-term Treasury bills at the end of May. Those who stand to gaining from the rate decline include:
• Parents. Rates on the Parent Loan for Undergraduate Students (PLUS), a federal loan for parents tied to T-bill rates, could drop to 4.2 percent from 4.86 percent.
• Those who consolidate. Borrowers can consolidate loans, typically extending the payment period and locking in current rates, rounded up slightly, for the life of the loan.
Student loan rates are adjusted annually. If rates fall to 3.44 percent, borrowers with post-1998 loans could lock in at 3.5 percent, said Robert Murray of USA Funds, which guarantees student loans. A borrower with a $25,000 loan, repaid over 25 years, would save nearly $2,000 in interest.
Once loans are consolidated, they usually can't be consolidated again. So students should wait at least until early June, when new rates are announced, loan experts say.
If loan rates increase, borrowers will have time to lock in before July 1. And if they fall, consolidating after July 1 will lock in the lower rate.
Sallie Mae says borrowers who consolidate through its program now will receive the lower of the two rates as long as they submit applications by June 30.
