Experts Advise Loan

Experts Advise Loan


Within the next month many IU students and recent graduates will have the opportunity to save thousands of dollars by consolidating their federal student loans before the interest rates substantially increase July 1. By consolidating their loans now, students can lock in the lower interest rates for life and reduce their monthly payments by up to $10,000 in the repayment process.

"The interest rate is currently at 4.7 percent, but after July 1 it will go up to 6.8 percent, and that's quite a change," said Bill Ehrich, associate director of the IU Office of Student Financial Assistance.

The current loan rate is the fourth lowest it has ever been in the history of the federal student loan program, but Ehrich said he believes that the rate of 6.8 percent will stick for up to three years. If students consolidate their loans now, the interest rate they pay won't ever change unless they qualify for discounts from the lender. Considering that some students pay loans off for up to 30 years after college, a low interest rate makes a tremendous difference in the amount they will pay over time.

The most common type of loan that students use is a Stafford Loan, which is put into law by Congress. The federal interest rate is raised when more people want to borrow. "Student loans are subsidized by the federal government," said Robert Jennings, IU professor of finance. "Interest rates increase with the pace of economic activity and inflation."

The process of consolidating a loan is relatively simple and can be done by submitting an online application in a matter of minutes. IU students who borrow their loans from Sallie Mae, the largest student loan consolidator in the country, are recommended to consolidate loans through them. When consolidating loans, a borrower's savings will depend not just on the current interest rate, but on the current balance of their loan as well. Students who do not want to fill out an online application can go to the IU financial office for assistance or to receive consultation about their options.

"I am definitely going to consolidate the loans I've taken out soon," said sophomore Erika Schlichter. "The low rate makes a huge difference, especially for me because I am paying out-of-state tuition." Ehrich said students looking into their loan consolidation options should beware of false advertising and disreputable organizations.

"Students should stick with large, well-funded banking organizations like Sallie Mae," Ehrich said. "Some other loan consolidation organizations make offers that are too good to be true, so students should be careful. If someone makes you an offer that's too good to be true, it is."

He added many companies that send direct mail and telemarket their services may seem like they are affiliated with the federal government, but they are actually private consolidation brokers who get paid for every loan that they consolidate.

With the deadline fast approaching, students only have a limited amount of time to weigh their options. "It is important not to wait until the last minute to fill out the application," said Pat Scherschel, vice president of loan consolidation at Sallie Mae. "Lenders need to have a completed application by June 30 to ensure that their borrowers won't incur interest at the higher rate. There's no reason to wait, students should get going on this."