Borrowers who apply now to consolidate their federal student loans can be assured that they will receive the lowest available rate -- even if interest rates drop on July 1, the Department of Education announced today.

Student loan interest rates -- now at 4.06 percent for most borrowers in repayment -- are expected to fall below four percent when new rates go into effect on July 1. Interest rates are adjusted annually according to a formula based on the interest rates of the 91-day Treasury bills.

"This is a win-win situation for today's students," said U.S. Secretary of Education Rod Paige. "While student loan interest rates are currently low, it is highly anticipated that they will drop even more to lows that we have not seen for several decades."

Borrowers who submit direct loan consolidation applications between now and June 30 will be notified by the U.S. Department of Education's Office of Federal Student Aid (FSA) that their applications will be held until the new rates take effect on July 1. If interest rates were to go up at that time, borrowers who submitted their applications between May 8 and June 30 of this year would be consolidated at the current lower rate. Borrowers who wish to consolidate their loans prior to July 1, can direct FSA to do so.

Most federally insured education loans are eligible for consolidation. These include Direct and FFEL (Federal Family Education Loans) subsidized and unsubsidized Stafford loans, PLUS (Parent Loans for Undergraduate Students) loans, Federal Perkins Loans, and HEAL (Health Education Assistance Loans). Through loan consolidation, outstanding student loans are combined into a single loan, and the interest rate is fixed for the life of the loan.

"Individual circumstances certainly vary and borrowers should consider all their options, to be sure, but the department would like to give borrowers looking to consolidate the opportunity to take advantage of a potentially historic low new rate," Paige said.

For example, if interest rates fall to the estimated new rate of 3.5 percent, a borrower with $20,000 in student debt might save an estimated $710 in interest over 10 years and $1,570 over 20 years.

More information on student loan consolidation, borrower benefits and eligibility requirements is available on www.loanconsolidation.ed.gov or by calling the Direct Loan Consolidation Center at 1-800-557-7392 or (TDD) 1-800-557-7395. An online calculator is also available on the Web site.

###

Top

Back to May 2003