I am in my third year of college. I have already taken many loans, including Stafford loans. Now, I just read that the interest rates are going up on July 1, 2012. I hope that I can afford to pay back my loans, but with an increase in the interest rates, my student loans will be a big financial burden. What should I do?
Thank you for your question about a student loan interest rate hike.
Student debt in America is over $1 trillion. Given that this is an election year, student loans have become a popular election topic. Student loans affect the type of education you can afford, as well as your economic well-being after finishing college. During the month of April the discussion about student loan interest rates has heated up.
In order to help you deal with your situation, learn about:
The only student loans that you have that are facing an interest rate increase are Subsidized Stafford loans taken after July 1, 2012. The interest rate for a Stafford loan is set when you take the loan. Therefore, all your Stafford subsidized loans up to now have a set fixed interest rate.
July 1, 2006, the interest rates for subsidized and unsubsidized federal student loans were set at 6.8%. However, a graduated reduction of the subsidized interest rate was made, reaching the lowest rate of 3.4% during the academic year of 2011-2012. Here is a table taken from the Dept. of Ed. Direct Ed Web site, of subsidized student loan interest rates for the period July 1 2008 – June 30, 2012:
|Date of First Disbursement||Interest Rate for Subsidized Undergraduate Loan|
|7/1/08 - 6/30/09||6.00%|
|7/1/09 - 6/30/10||5.6%|
|7/1/10 - 6/30/11||4.5%|
|7/1/11 - 6/30/12||3.4%|
|on or after 7/1/12||6.8%|
Therefore, your previous Stafford subsidized loans interest rates will not increase or decrease, but will be fixed based on the rate when you took out the loans. Your Stafford subsidized loans for the next year will be set at 6.8%, unless Congress passes a new law, which is not vetoed by President Obama.
The student loan interest rate hike comes during an election year. The affordability of a college education and student loans affect many American families. During April 2012, President Obama has made a few speeches about the increase in student interest rates. Through his Whitehouse blog, he has called for a twitter campaign to protest against the interest rate hike.
The Republican Party has also jumped on the anti-interest rate hike bandwagon. GOP nomination hopeful, Gov. Romney, has also come out against the hike. Everyone is for it, but the question is, who will pay for it? Currently, there are a number of proposals in Congress. The Republicans proposed a bill that would lower the interest rate bill at an expense in President Obama’s health plan. (President Obama indicated that he would veto that bill, if passed). The Democrats proposed a bill that would finance the current interest rate by cutting off a loophole in the tax regulations.
If the bill is not passed, then the interest rate for an unsubsidized Stafford Loan will automatically increase. Bills.com will keep you informed regarding the progress of the legislation.
The first step to take is find the right student loan basket The correct mix depends on your economic situation, the cost of your tuition and expenses, whether you are an undergraduate or graduate student, and the types of loans your parents can take. A Stafford Subsidized loan requires showing a financial need.
The maximum Subsidized Stafford loan is $5300 per academic year for a 3rd or 4th year student. (It is limited to $3500 for a first year student and $4500 for a second year student). For more information read the Bills.com article about getting a federal student loan.
An advantage of a Stafford Subsidized loan is that you are not responsible for the interest during the period you meet school enrollment qualifications, a six-month grace period and any eligible deferment period. For unsubsidized loans, your interest will accrue and be added to your balance during any period that you do not have to make payments.
Before taking a loan, be aware of all the repayment possibilities. The standard repayment schedule is based on a fixed payment over a 10-year period. Since you still have one more year of school, you still have time until your first payments on federal subsidized loans comes due. However, you may have taken other loans, so make sure that you keep good records of all your student loans, including the amount, the interest rate, the type of loan, the date you must begin to make payments, and the monthly payment. (Remember, if you loan is not a subsidized loan, then deferred payments will be rolled into your balance).
Read the Bills.com article about defaulting on federal student loans and make sure that you are familiar with the terms deferment, forbearance, income based repayment and consolidation. Any time you have trouble making payments, immediately contact your loan servicer. Default on a federal loan can lead to wage garnishments, tax garnishments, bank levies and liens on your personal property. For additional information, including contact information see the Department of Education’s Direct Education Web site.
In the bottom line, the student loan interest rate hike is limited to Subsidized Stafford Loans taken after July 1, 2012. If the politicians do not extend the current rate, then your interest payments will increase by about $15 per month (and less than $10 for a first and second year student) if you take the full amount. Those payments will not begin until you finish school and the grace period. For most students, subsidized student loans are only one part of their total student loan debt. Educate yourself and be prepared.
I hope this information helps you Find. Learn & Save.