CUT in federal student loan rate believed to be lowest in three decades
Monday, June 4th 2001, 12:00 am
By: News On 6
Paying for college is about to get less expensive for students and families saddled by education loans.
Starting July 1, the interest rate on federally backed student loans will be reset to what's believed to be the lowest level since the student loan program began in the 1960s.
Interest on student loans will drop to 5.99 percent, down from the current 8.19 percent, the U.S. Education Department said Monday. Students start paying off the loans six months after leaving school and typically have 10 years to do it.
The rate for parents borrowing in their own names for a child's education will drop to 6.79 percent from 8.99 percent. Those loans are owed immediately, like credit card debt.
``This is the lowest rate in the history of the student loan program, lower than even the 7 percent in place when the student loan program began in 1965,'' said John E. Dean, lobbyist for the Consumer Bankers Association, whose members are the largest commercial banks in the student loan business.
The new rates apply to loans first disbursed on or after July 1, 1998. A borrower could also benefit from the lower rates by consolidating loans taken before then.
The federal government estimates the new rate will save the student borrower with a standard 10-year repayment plan about $136 for every $1,000 they owe.
Federal student loans are given on a variable rate that's reset every July 1. The new rates reflect long-term interest rates the U.S. Treasury set after last week's auction of Treasury bills.
Close to 8,000 colleges, universities and training schools are eligible to participate in the federal loan program. This year alone, 5.3 million students and parents took out federal education loans averaging $3,838 each, education officials said.
Students who borrow to earn a four-year degree will graduate owing $16,000 on average, said Mark Kantrowitz, an expert on student finance and publisher of a Web site on the topic, FinAid.com. The new lower rate ``is a very significant drop,'' Kantrowitz said.
He estimates someone owing $16,000, and able to consolidate their debt at the new rate, could save more than $2,000 over the loan's lifetime.