February 13th, 2006 10:00 EST
Here comes a rate hike
The new student loan rate hike might seem scary, but by knowing your options one can avoid the increase or avoid paying off the loans completely.
“The bar is flirting around 6.8 percent,” said Kathy Sanders, from American Education Services about the new student loan interest rate hike.
After doubling the rates in the last few years from just over 2 percent to 4.8 percent, congresses has passed another rate hike. In addition, it looks like this time it will again move up by 2 percent.
“I don’t know why they would want to hurt the students,” said Sanders.
For an average college student who actually graduates in four years and takes out loans to pay tuition, the total amount of loans is somewhere about $19,000. At 4.8 percent, this comes out to just about $20,000. This is no small amount for a recent graduate to repay. However, without consolidation, at 6.8 percent that figure climbs to $20,212.
These numbers may not seem like a huge difference, but without knowing when you’ll get hired following graduation, that extra $200 dollars may be the difference between eating and not.
Graduate students, on average, owe about $27,000. This figure at 6.8 becomes $28,836. This $1800 increase is only based on the average graduate student. Some students may have taken out much more than others may. In addition, this would make the loan repayment total much higher.
“I get about $18,000 a year in loans for law school,” said Ashlee Mullenix, a second year law student at West Virginia University. That will bring her graduate school loan total to just under $50,000 upon graduation. This added to the $20,000 she borrowed for her undergraduate degree brings her total debt after graduation to nearly $70,000.
Despite it seeming like such a large amount of money, half of it goes to tuition. This leaves her with less than $10,000 a year to pay rent, buy groceries, and gas.
“It has to be enough to live off. I don’t have any other choice,” said Mullenix.
Mullenix decided against working while she pursues her law degree in order to be competitive with the rest of the students in her class.
“I already consolidated my loans, and even though it’s only going to be 4.8 percent, it’s going to mean I’ll have less freedom in choosing a job. I have to pay off a lot of money,” said Mullenix.
Her main concern is what she will do when she gets her job.
“With the loan payments, I don’t know if I’ll be able to buy a car, house or just be stuck paying off these loans.”
Luckily, Mullenix was on top of getting her loans consolidated, but she knows there are people out there who have no clue that it is even an option.
“Every dollar is going to help when I get out in the work force. I know that goes for everyone,” said Mullenix.
There is one thing that will have to be forfeited by the student if he or she decides to consolidate before graduation.
“As long as the student has direct loans, there will be no problem with consolidation while they’re still in school. The only thing that they’ll have to give up is the six month grace period following graduation,” said Sanders.
Some students fear that the repayment plan set up by the consolidation companies will be much more stringent than the one the government has. This is untrue.
The exact details are laid out on www.aessuccess.org.
“Repayment isn’t the only option,” said Sanders.
There are various forms of “forgiveness” offered by the government for certain professions. Another option available is becoming a commissioned officer in the armed services. Much of the time, the government will pay all the loans in exchange for military service.
Most importantly, students need to realize that the interest rate for most federal loans is variable. In addition, if they do not consolidate now at the lower rate, there is a possibility that the rate will go down after a few years. However, if a student graduates and the rate is at 6 percent, that is the rate they will have to repay at even if the rate drops lower while they are making payments.
Conversely, it is possible that consolidating now at 4.8 percent could hurt students who are not graduating for a few years if the rate drops below 4.8 before they graduate.
Unfortunately, knowing what is going to happen with the interest rate is a guessing game.
“The only way to know what’s best for you is to look at your situation and see what’s available,” said Sanders.