Federal Stafford loan interest rates will see their first increase in five years at the beginning of next month, leaving current Portland State students wrestling with the option of locking in the current record-low interest rates by consolidating their loans.
Stafford Loan interest rates will nearly double after July 1, rising from 2.77 percent to 4.7 percent. These rates are calculated by Congress and are based each year on the results of the final 91-day Treasury-bill auction in May. Under the new rate, a student with $20,000 Stafford loan debt with a 20-year repayment period could end up paying nearly $5,000 more in interest.
Current students with over $7,500 in multiple government-issued educational loans have the option to consolidate them, combining them into a single loan that stays at the current interest rates.
General Science major Delilah Jones, a senior, set the consolidation process in motion as soon as the rising rates were announced. “I’m very money conscious,” she said, “possibly even obsessed.” She consolidated her $15,000 in Stafford loans which, by her estimation, will save her $3,000 if she pays them off in ten years, “and that’s assuming that the new rate doesn’t increase further, which it probably will. It’s time consuming, but I think it’s worth it.”
“Buyer beware,” said Kenneth McGhee, director of financial aid at PSU, “Use the company that you’ve been with. There are some companies that m
ay not have the best intentions.” He added that there have been many companies “which came into business specifically because of the consolidation rush.”
Many students at PSU are choosing not to consolidate.
Senior English major, Anne Marie Brown, has opted against consolidation, saying that it seems more trouble than it is worth. “I don’t care. When you’re as poor as I am, two percent doesn’t mean shit. I might as well owe a million dollars – it’s funny money.”
Brown said that she received multiple letters and phone calls from lenders but sees the loan repayment grace period and ease of deferment as “far more important than possible savings.”
The aggressive nature of the unsolicited phone calls from “a large lender” which English senior, Elizabeth Andrews, began receiving in June originally turned her off to the idea. “I talked to the guy three or four times before I did it and let myself get comfortable with it first.”
She also spoke with other major lenders to make sure that everyone was saying the same thing.
As to the loss of the grace period, Andrews said that “it sounds like there are ways around it,” such as an economic hardship deferment.
For students interested in consolidating, time is running out to lock-in the current rates. Signed applications, which can be sent online and are a commitment to consolidating, must be received no later than midnight on June 30, according to Erin Korsvall, spokeswoman for Sallie Mae.
Students may consolidate their loans only once, and after graduation will lose the typical six-month grace period before loan repayment begins.
“It’s not a good fit for everybody,” said McGhee. He recommends that students near the beginning of their school career hold off rushing to consolidate. He says, however, “if you’re about to finish with school, I would definitely consider consolidating. You don’t want to miss out on any savings.”