June 18, 2007
FOR IMMEDIATE RELEASE
(Contact: Irene Racz, director of public affairs, 802-655-9602, x240)
VSAC Urges Borrowers to Get the Facts before Consolidating
WINOOSKI — Interest rates on variable-rate federal education loans are set to rise slightly on July 1, prompting some borrowers to wonder whether they should consolidate to lock in their rates. Scheduled increases for variable-rate loans disbursed between July 1, 1998, and July 1, 2006, are as follows:- Stafford (student) loans in grace or deferment — from 6.54 to 6.62 percent
- Stafford loans in repayment — from 7.14 to 7.22 percent
- PLUS (parent) loans in repayment — from 7.94 to 8.02 percent
Consolidation enables a borrower to roll one or more existing loans into a new loan with a fixed interest rate and single monthly payment. If desired, borrowers can reduce their monthly payment amount by extending their loan term from 10 to as many as 30 years, depending on their total debt.
From 2002 to 2005, interest rates on most federal education loans kept dropping, setting record lows each year. Since most borrowers at that time had variable-rate loans, consolidating to lock in a historically low rate made a lot of sense.
Today, the situation is more complex. Effective July 1, 2006, the federal government changed to a fixed-rate system, with rates on new Stafford loans at 6.8 percent and new PLUS loans at 8.5 percent. Many students and parents now have a combination of variable- and fixed-rate loans. Even with interest rates climbing, consolidation won’t necessarily save money — and in some cases may cost more.
“Everyone’s situation is different, so it’s important to know the facts before consolidating,” explained Don Vickers, president and CEO of the Vermont Student Assistance Corporation. A public nonprofit agency, VSAC provides federal loans, including consolidation loans, to Vermont residents and those attending Vermont colleges.
Vickers noted that Vermont families are being swamped with phone calls and mail from loan consolidators seeking to gain their business. Offers frequently trumpet rebates and other benefits that might not be available to most borrowers.
“It’s important to read the fine print,” said Vickers. “When it sounds too good to be true, it frequently is. Borrowers need to make sure that they consolidate for the right reasons, and to understand that, when they do, they might lose valuable discounts on their existing loans.”
VSAC has created user guides for three groups of borrowers who might consider consolidation: undergraduate students and their parents; graduate students; and medical and law students. Consolidation remains a good option for those who want to simplify their payments and lower their monthly amount by extending their repayment period. However, doing so increases the total interest paid over the life of the loan.
To learn more about the pros and cons of consolidation or to consolidate with VSAC, visit www.vsac.org or call 800-798-8722.
