Representing North Carolina’s Ninth District                                                                        

YOU COULD SAVE THOUSANDS ON YOUR FEDERAL STUDENT LOANS

People with student loans often receive mail from lenders asking them to consolidate their loans.  Most people think these letters are junk mail. However, you should reconsider before throwing them away.

I am urging everyone who has federal student loans, even current college students, to consider consolidating your federal student loans before July 1, 2005.   

On July 1, 2005, federal student loan interest rates will increase from 3.4 percent to 5.3 percent.  This 2 percent increase in interest rates means that if you have $20,000 in student loans and you wait to consolidate your loans after June 30th of this year, you will have to pay more than $2,000 in additional interest.

Keeping up with student loan payments is costly and burdensome.  Graduates, and current college students, often have multiple student loans to repay.  Worse, each loan comes with different costs because each is at a different variable interest rate.   This can easily cause frustration as the borrower makes multiple payments and tries to figure out loan costs each month.  

Student loan consolidation can help relieve these burdens.  When a borrower consolidates they only get one student loan bill each month, not three or four.  More importantly, borrowers will never have to guess what the cost of the loan will be each month.  Consolidation takes away the random variable rate costs and locks the borrower into a fixed rate that doesn’t change during the life of the loan.

It is true that student loan variable interest rates have been extremely low during the past few years.  Due to this fact, many people have been hesitant to lock into a fixed rate.  However, interest rates are on the rise, and are expected to continue to rise over the next year or two.  If you have variable student loans, these higher interest rates will cause the costs of your student loans to increase and the money in your pocket to decrease.

Right now, borrowers have the opportunity to consolidate their loans at a fixed interest rate of 3.4 percent.  Students currently in college can consolidate at an even lower interest rate -- 2.9 percent!  These are historically low fixed interest rates that will not be offered after June 30, 2005.  In fact, according to the U.S. Department of Education, interest rates for student loans are expected to increase again by 2.5 percent on July 1, 2006.

Borrowers who have already locked into fixed interest rates that are higher than the current rates should know that they cannot “re-consolidate” their loans.  But the Bush Administration has a proposal before Congress now that would change the law and allow you to re-consolidate to a lower rate, with a small transfer cost.  I support this proposal and hope Congress will act on it quickly. 
The Congressional Research Service has issued a report that states the historically low fixed interest rate benefit, if locked in today, will save the average new borrower more than $2,000 over the life of their student loan debt.  Borrowers shouldn’t pass up this important opportunity to lock into low interest rates and save thousands of dollars.

For information on student loan consolidation and potential savings, call 1-800-557-7392 or 1-800-557-7395.  To look up information on the internet, please visit www.loanconsolidation.ed.gov.

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