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Student loan rates set to make highest one-year increase

College students who do not consolidate their federal student loans before July 1 will see their interest rates increase by almost two percentage points, an increase that could cost student borrowers thousands of dollars.

The increase will be the first in five years and the largest one-year increase in the program’s history.

Student loan interest rates change every July 1, but the changes are not usually as significant as they are this year.

The interest rate for students still in school or in the six-month grace period following graduation is currently 2.77 percent, but the rate will increase to 4.7 percent in July. The repayment rate will increase from 3.37 percent to 5.3 percent.

“I had no idea,” said University sophomore Jyme Butterfass, who is partially paying for school with student loans.

Butterfass said she was already worried about paying back her student loans, but the interest-rate increase would make it even harder.

“Why make it more money?” she said. “If I consolidate now, I won’t owe as much.”

By consolidating, Butterfass and other college students can lock in the current interest rate – which is at a 40-year low – for the lifetime of their loans, said Martha Holler, spokeswoman for Sallie Mae Corporation, a private-sector lender.

“Students will combine the outstanding debt from all of their loans into a single new loan,” Holler said.

This means paying only one payment to one lender, she said.

Students who consolidate will also have 30 years to pay back their loans instead of 10 years.

A variety of loans can be consolidated, including Federal Stafford Loans, PLUS Loans – money borrowed by a student’s parents – and Perkins Loans, Holler said.

But students should be careful when thinking about consolidating Perkins Loans, she said.

“The government pays the interest on Perkins Loans while students are in school, but if the loans are consolidated, the students waive that benefit,” Holler said.

Also, Perkins Loans already have a fixed interest rate of 5 percent, so the interest rate would not change by consolidating.

Students can either consolidate directly with the government or through a private- sector lender, such as Sallie Mae, Holler said.

Private-sector lenders might provide borrowers with ways to reduce interest rates the government cannot offer, she said.

But for students still in school, the consolidation process becomes more complicated when done through a private lender, Holler said.

Students who wish to shop around for the best benefits from the private sector should contact the lender first to make sure the lender is eligible to consolidate their loans and should then go through the application process.

Students who wish to consolidate their loans directly through the federal government can do so online or by phone.

The University usually tries to shy away from encouraging students to consolidate, said Kris Wright, University Office of Student Finance director. But now is as good a time as any to do it.

“Interest rates are at historically low levels, so it makes it a smart choice for students with loans,” Wright said.

Butterfass said it is important students are made aware of their options.

“We’re already paying so much money to go here, and we’re all worried about how we’re going to pay it off when we get out, and now it’s going to be even more without us even realizing it,” she said.

Students have until midnight on June 30 to apply for consolidation.

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