May 19, 2006 16:19 ET

Reminder -- Student Loan Interest Rates Set to Increase -- CONSOLIDATE NOW

EDINBURG, TX -- (MARKET WIRE) -- May 19, 2006 -- COSTEP, a not-for-profit organization, would like to inform all students and their parents that student loan interest rates on unsubsidized and subsidized Stafford loans will increase from a low, variable rate of 4.7% and 5.3% (dependent upon loan status), to a fixed rate of 6.8% (for all loan statuses). Parent loans with a current rate of 6.1% will increase to 8.5%. All loans made on or after July 1, 2006 will be affected by the higher interest rates.

The student loan rate increase is due to the recently passed Higher Education Reconciliation Act (HERA), signed by President Bush on February 8, 2006. The Higher Education Reconciliation Act will prohibit students who are in school from consolidating their student loans after July 1, 2006, thus in-school consolidation loans will no longer be made available. Also, spousal consolidations will no longer be available after July 1, 2006.

All loans made PRIOR to June 30, 2006 will remain at a variable interest rate. The rate is determined by the 3 month T-Bill at the last auction in May of each calendar year and is the baseline for setting the rates, which take effect on July 1st of each calendar year. To keep from paying thousands of additional dollars in interest, borrowers and parents should consider consolidating their federal student loans before the July 1 date.

"There is a window of opportunity," explained Patricia Beard, president of COSTEP. "Through 11:59 pm, June 30, 2006 all current policies and student loan interest rates apply. This means that you can still consolidate your student loans, obtain student loans at the current variable rate and obtain a spousal consolidation, also at the current rates. The key is that you must make an application on or before midnight June 30, 2006 to be able to take advantage of the current rates. If you have your application filed prior to the deadline, you're covered under the current guidelines. The exception being, if you have a current student loan with a claim on it due to non-payment your application will be denied."

There are several different student loan incentive programs offered by COSTEP under the Department of Education guidelines. The new interest rates of July 1, 2006, will affect all new loans made on or after this date.

"The change in the federal student lending policy, besides the increase in interest rates, is the elimination of the variable rate student loan. However, once the new federal policies go into effect, an in-school student can still apply for additional loans. They just can't consolidate their loans into one payment until they are in repayment and, of course, the new loans will be at the higher interest rate," said Patricia Beard, president of COSTEP.

Contact Information

  • For More Information Contact:
    Pat Jackson
    Telephone number: 1.800.949.6371 ext. 3450
    Email: Email Contact