June 23, 2006 19:33 ET

Students Rush to Consolidate Before Rates Increase

EDINBURG, TX -- (MARKET WIRE) -- June 23, 2006 -- Students and parents are preparing for the interest rate hike on student loans by consolidating before new interest rates go into effect.

Beginning July 1, 2006 student loans with variable interest rates will rise by nearly 2-percentage points. Depending on the loan status, a Stafford loan currently having a low, variable rate of 4.7% or 5.3% will increase to a new variable rate of 6.54% and 7.14%. Parent PLUS loans with a current variable rate of 6.1% will increase to a new variable rate of 7.94%. New loans issued on or after July 1, 2006, will carry fixed interest rates of 6.8% for Stafford loans and 8.5% for PLUS loans.

The new rates are a result of the Higher Education Reconciliation Act (HERA) signed into law by President Bush on February 8, 2006. In addition to higher interest rates, HERA will prohibit students who are currently in school from consolidating their student loans effective July 1, 2006.

"We have seen an increase in student loan consolidation activity and we anticipate a rush between now and midnight June 30th," said Mari Mann-Silva, vice-president of Financial Operations of the not-for-profit Council for South Texas Economic Progress (COSTEP). "Loan consolidation incentives along with the July 1, 2006 rate increase are driving the market," Mann-Silva added. "COSTEP offers incentive plans based on loan amounts. The following is a recap of those incentives: Student loan amounts of $12,500 or greater will receive a 1% interest rate reduction at the time of consolidation and an additional 1% interest rate reduction after 36 on time payments; loan amounts that are between $5,000 and $12,499.99 will receive a 1% interest rate reduction after 36 on time payments; all student loans are eligible to receive a .25% incentive for participating with the SUREPAY(SM) program."

"The end result is that many students will be paying thousands of dollars more in interest rates unless they consolidate now," said Patricia Beard, president of COSTEP. "There is a window of opportunity but the window is closing. You can still consolidate your student loans and obtain new student loans at the current rate as long as you submit the completed application before midnight, June 30, 2006."

Under HERA, spousal consolidation loans will no longer be available once the act goes into effect. The not-for-profit COSTEP will still be able to offer incentive programs under the Department of Education guidelines, however, the new interest rates of July 1, 2006 will affect all new loans made on or after July 1.

"The best thing that you can do as a student or parent is review your student loans and call now for assistance to avoid the rush. What we fear most is students having to drop out of college or students not going to college because of the increase in interest on student loans," added Beard.

Once the new federal policies go into effect, an in-school student can still apply for additional loans. They will no longer be able to consolidate their loans into one payment and the new loans will be at the higher interest rate. COSTEP urges all students and parents with student loans to review their rate and take advantage of the incentives offered by lenders.

The not-for-profit COSTEP has extended its hours to accommodate more students. Extended hours will be until 9:00 pm, June 26-29 and will keep its offices open until midnight June 30th.

Contact Information

  • For More Information Contact:
    Mari Mann-Silva
    Telephone number: 1.800.949.6371 ext. 3329