The historically low interest rates on federal loans are about to skyrocket, and with only 15 days left to lock in the low rates before the July 1 deadline, the clock is ticking for Northeastern students to consolidate their federal loans.
The interest rates on Stafford Loans, popular federal loans many students use to help pay their college tuition, are jumping from 2.875 percent to 5.3 percent, said Seamus Harreys, dean of financial aid. For students with significant loans, consolidating their loans and locking in the low interest rate could save students thousands in the long run, he said.
“[Consolidating] is taking the loans you’ve borrowed, consolidating into one loan and locking in the current interest rate,” Harreys said. A student who has borrowed between $15,000 and $18,000 could “save thousands of dollars” by consolidating before the interest rate increase, he said.
Stafford Loans allow freshmen students enrolled full time to borrow up to $2,625 their first year of school, with additional loans for higher amounts available as the student continues school. Students with Stafford Loans also have the option to defer payment on their loans until six months after graduation.
Billy Haddad, the Student Government Association’s vice president-elect for financial affairs, said he is “one click away” from finishing his loan consolidation form. He decided to consolidate to make his repayment easier.
“The amount of loans I have is small enough that I can afford monthly payments,” he said.
While combining loans often saves students money in the long run, there are some downsides to consolidating, Harreys said. Often, consolidation eliminates the six-month grace period that allows students to get on their feet after graduation before having to start payments on their loans. Students should make sure they are financially capable of paying loan payments immediately upon graduation before choosing to consolidate, he said.
“In many ways it’s better to lock in that interest rate if you’re fairly certain that 30 days after graduation you’ll be able to pay,” Harreys said. “If you’re not sure about your income, the worst thing is to default on a federal loan.”
Middlers, juniors, seniors and recent graduates are most likely to benefit from consolidating, Harreys said, because students in their later years of college have usually accumulated more debt. Although consolidating now gives students the chance to lock in a much lower interest rate, Harreys said any other loans taken out after the consolidation would be subject to the new 5.3 percent rate.
Consolidation is offered every year to students with federal loans, Harreys said, but this is the first year when consolidation can make such a big difference for student loan repayment. Harreys said the interest rate jump is the largest in nearly two decades.
Students have until June 30 to decide to consolidate, but he said students should start the process several days earlier to make sure everything is complete by the deadline. He said the financial aid office has sent out e-mails offering students help in the process. Most consolidations can be completed within a 15-minute phone call to the student’s loan provider, Harreys said.
“We’re trying to connect with students,” Harreys said. “This is an opportunity for students to save a lot of money.”
