Students will soon repay less money when taking out federal student loans, according to the U.S. Department of Education.
The department announced last week that starting July 1, federal student loan interest rates will drop from 5.99 percent to 4.06 percent. The cut makes rates the lowest they have been in decades, U.S. Department of Education officials said.
The department also revealed a 3.46 percent interest rate on unsubsidized loans for students who are in school, within the six-month grace period following graduation or deferring their loans.
James Kennedy, senior associate director in the Office of Student Finance, said the cut is the largest he has ever witnessed.
“I thought last year when the rate dropped to 5.9 percent it was excellent,” Kennedy said. “This is great for students.”
The drop means a student with $10,000 in loans and a 10-year repayment plan could save approximately $1,133 in interest during that time, department officials said.
While Kennedy said the average University undergraduate accumulates $14,000 in loans, officials siad, the average student nationwide borrows $16,000.
Kennedy said recent graduates should consolidate their loans to benefit from a fixed rate.
“If students consolidate their loans now they will be locked into the 4.06 percent,” he said. “Interest rates change year to year so this would guarantee a permanent low rate.”
Even with the lower rate, Kennedy said he does not encourage students to take out more loans than they would normally.
“As always, the less you take out, the less you have to pay back,” he said.
Nearly 16 million borrowers owe the federal government a total of $250 billion, said department spokeswoman Stephanie Babyak. And the number of federal loan recipients is increasing, according to the budget proposals of President George W. Bush’s administration.
University student Nik Fernholz reacted happily to news of the rate reduction. The history and elementary education sophomore is currently paying back a $1,000 Stafford loan.
“It’s great because I used to just pay the minimum,” Fernholz said. “I can start paying into the principal now.”
Fernholz receives federal grants to pay for the majority of his education but said grant money only goes so far.
“I know I will have to take out more loans,” Fernholz said. “I hope the interest rate continues to be this low.”
Elizabeth Putnam welcomes comments at [email protected]
