Student Financial Aid News

Federal student loans prior to July 1, 2006 used to be variable rate loans. Stafford loans issued before that date were set at the price of the 91-day Treasury Bill (T-bill) rate for the last auction in May of each year + 1.7% for loans in grace, 91-day + 2.3% for Stafford loans in repayment, and PLUS loans were set at 91-day + 3.1%. In 2005, overreacting to temporarily high interest rates, Congress mandated that Stafford loans after July 1, 2006 would be set at a fixed rate of 6.8% and PLUS loans at 8.5%, removing the variability of federal student loan interest rates.

How shortsighted that looks today. The 91-day T-bill rate closed on May 28, 2009 at 0.178%, the lowest it’s ever closed at for student loan purposes.

For the class of 2009, which should be the last class to have any variable rate federal student loans, your Stafford loan interest rate from graduation to the end of your grace period (in 6 months) is a whopping 1.878%, far, far below the 6.8% for loans issued after July 1, 2006. Once your loans go into repayment, they’ll be 2.478%. Parents with PLUS loans taken out before July 1, 2006 will pay a rate of 3.278%, far below the 8.5% they’ll pay on loans issued after July 1, 2006.

Here’s the best part for the class of 2009: you can still consolidate your federal student loans. Student loan consolidation remains available, primarily through the Department of Education, and that will lock in these abnormally low interest rates for the remainder of the loan terms.

Commentary

There are two lessons here. First, consolidate your student loans if you have any of the older variable rate loans. You will probably never get a better interest rate, period. Second, assume that whatever piece of legislation Congress names, it will have the opposite effect. The 2005 legislation that has since cost college students millions of dollars by locking them out of the lowest interest rates in history? The College Access and Opportunities Act. The 2007 legislation that forced the majority of student loan companies to either go out of business or curtail borrower benefits like interest rate discounts for on-time payments? The College Cost Reduction and Access Act, which increased the cost of college and reduced access. Based on their track record, you can safely bet that the upcoming Higher Education Opportunities Act will provide no new opportunities for students.

The lesson to be taken from this is for students, parents, and families to stay informed and engaged in the political process, and to assume that Congress is completely incapable of predicting the unintended consequences of their legislation. Stay informed, stay engaged, stay up to date on the things that are going to impact your wallet now and in the decades ahead. Communicate with your elected officials and pressure them when they’re about to do something that’s a really bad idea.

Scholarship Update

“The Project FUNDway” scholarship program is available to assist young men and women for outstanding academic achievement and commitment to the practice of fashion design. Eligible students must demonstrate academic promise, a strong interest in fashion design, merchandising, business of fashion or marketing, and show financial need. Maggy François, Vice President of Education and Training Division for GWFCC, stated that “educating our youth through design is an important investment in their futures. We must encourage our young people to dream beyond the stars, because there is so much passion in fashion; and with our support, we can help someone achieve that dream.”

Three final applicants will be selected based on style, individuality and quality, and invited to compete at “The Project FUNDway” runway competition, where their collections will be featured and modeled by “Top Models.” The competition will be judged by an expert panel representing all facets of the fashion industry.

Details at our free college scholarship search site.