A r c h i v e d  I n f o r m a t i o n

FOR RELEASE
June 9, 2000

Contact:
Lisa Cain
(202)260-5398
Jane Glickman
(202)401-1307
Stephanie Babyak
(202)401-2311

OPPORTUNITY FOR LOW INTEREST STUDENT LOAN CONSOLIDATION RATES EXPANDED

Greg Woods, chief operating officer of the U.S. Education Department's office of Student Financial Assistance (SFA), today announced that borrowers may apply for loan consolidation as late as June 30 and still take advantage of low student loan interest rates currently in effect. This opportunity is available in the direct loan program. Private lenders who participate in the federally guaranteed student loan program may also offer the extended consolidation opportunity.

"We want to keep the door open as long as possible," Woods said. "This seems only fair because the application date is the one step a borrower can control in the loan consolidation process."

Student loan interest rates for the upcoming school year are adjusted once a year according to a formula based on the interest rates of the 91-day Treasury bills, auctioned at the most recent Treasury Department auction before June 1. Using this formula, effective July 1, Stafford loan rates will rise from the current low rates -- ranging from 6.32 to 7.72 percent -- to between 7.59 and 8.99 percent. Rates on PLUS loans for parents with dependent undergraduates - now ranging from 7.72 to 7.98 percent - will increase to between 8.99 and 9.48 percent. (Interest rates on Stafford loans vary depending on the formula in effect when the loan was made or when the borrower started school.)

Through loan consolidation, multiple outstanding student loans are combined into a single loan, and the interest rate is fixed for the life of the loan. With the upcoming increase in interest rates, a borrower can benefit by consolidating before the interest rate increases go into effect. Consolidation rates for the Stafford student loan programs are based on the weighted average of the loans being consolidated rounded up to the nearest one-eighth of a percentage point.

To provide borrowers with the maximum amount of time before July 1 to take advantage of the current lower interest rates, these lower current rates will be used to calculate the loan consolidation interest rate as long as the borrower applies before July 1. The application date will now be based on the postmark date for paper applications; the electronic receipt date for web applications; and the date of telephone call for Express applications for borrowers with only direct loans.

Previously, consolidation rates were calculated using the interest rate in effect on the date loan holders certified the underlying loans, rather than the application date. Lenders may take anywhere from 7 to 30 days after the consolidation application is filed to verify loan information. This meant that borrowers applying shortly before July 1 might not have received the lower interest rate.

"We're always trying to do a better job, and doing this better could mean saving borrowers a lot of money," Woods said. "Everyone who thinks they're eligible should at least check out whether consolidation meets their individual financial needs."

A borrower with $20,000 in student debt, for example, might save an estimated $1,500 in interest over 10 years (based on a standard 10-year repayment plan) compared with repaying that same loan at the 8.25 percent rate. The interest savings would increase to $3,800 for a loan with a 20-year repayment plan.

Borrowers may consolidate through the direct loan program if they have a direct loan or if their private lender does not offer a comparable interest rate or acceptable repayment terms. Borrowers who consolidate while in school or during their grace period could benefit from additional savings.

SFA helps about 8.5 million Americans through school each year and administers student loans and grants totaling about $50 billion a year. As the federal government's first performance- based organization, SFA strives to improve customer satisfaction while cutting the costs of administering student aid programs.

For more information about student loan consolidation, visit www.loanconsolidation.ed.gov or call 1-800-557-7392 (TDD 1-800-557-7395).

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