We’re only two weeks away from another increase to student loan rates on new loans, existing, and unconsolidated loans. As of July 1, 2014, federal student loan rates will increase 0.8%. As if the repayment of student loans isn’t enough to make students and parents cringe, the increase in rates could add years of payments over the lifetime of the loan. There are four key borrowing groups that will see a direct impact of this impending rate spike: students who haven’t consolidated older loans; undergraduates borrowing new loans; graduate students; and parent PLUS loan borrowers.
Now, let’s see how you can protect yourself and your pocket from accruing additional interest and dollars on your student loan.
Group 1: pre-2006 loan borrowers with unconsolidated loans
Students with loans dating between July 1, 1998 and June 30, 2006 must pay special attention to their loans. If you have loan(s) disbursed during that time frame, we suggest consolidating your loans before the July 1st deadline. Through consolidation, you’ll be able to lock your loans into a rate of 2.375% for graduate, undergraduate, federal subsidized and unsubsidized loans that are in repayment status.
Group 2: undergraduates borrowing new loans
For undergraduates that will be borrowing new loans in the 2014/2015 school year, there’s nothing you can do to escape the 0.8% rate increase. Instead, formulate a family plan on how best to use the refund check (the leftover amount of the loan after the tuition and attendance fees are paid). Additionally, consider paying the interest on federal unsubsidized loans while the student is still in school. For borrowers with subsidized loans, you don’t need to worry about the interest while still in school because interest doesn’t begin accruing until after graduation.
Group 3: graduate students
If you’re making the decision to continue your education through graduate school, let us be one of the first to extend our well wishes. But, resist the urge to pay off undergraduate loans before earning your advanced degree. Federal unsubsidized school loans are the only loans available for graduate students; they’re being opened at a 6.21% rate versus the nearly 4% rate for undergraduates.
Additionally, we suggest minimizing the graduate PLUS loans (rising to 7.21% July 1st) you acquire. PLUS loans can be borrowed up to the full cost of attendance, making them attractive to students, but a dangerous option. Instead, take the time to compare textbook prices, and public versus private school programs, among other things.
Group 4: parent PLUS loan borrowers
Just like graduate PLUS loans, parent PLUS loans will spike to 7.21% on July 1st. Parent PLUS loans allow parents, and guardians, to assume the financial cost of sending their child to further their education in college. Before committing to a parent PLUS loan, calculate your potential semester payments on the Federal Student Aid Website with the repayment estimator calculator.
As always, we encourage our members to weigh the financial risk(s) and option(s) of every situation. Student loan debt can be a dark cloud that follows a student around for 10 to 25 years post-graduation. Call one of our branches today to set up an appointment with an LRRCU staff member or our recommended financial planner!