FREDERICKSBURG, Va. - The latest interest rate hike by the Federal Reserve may mean more than a question on an Economics 101 final for many college students and recent graduates. That rate increase is expected to translate into higher student loan costs starting in July. Michael Blattman is vice president of Collegiate Funding Services, a private lender specializing in student loan consolidation. Blattman notes since the variable interest rates that currently apply to Federal student loans were last set, the Fed has increased the short-term lending rate by 1.25%. This means borrowers could see their Stafford rates rise from the current 6.92% to a rate approaching their 8.25 cap, and their PLUS rates climb from 8.13% to their 9% cap July 1. The exact increase will depend on T-bill rates at the last auction in May. Blattman says credit unions could help members with student loans by alerting them to the coming rate hike and advising them to lock in rates before July 1. The credit union can also help the member examine whether loan consolidation can help. The Federal Consolidation Loan Program can allow students to lock in a fixed rate before the pending increase. Under government regulations, the final interest rate is based on the date the loan servicer certifies the underlying loan. Some questions students and former students still paying off their loans can ask: * Is the consolidation loan indeed a fixed rate? Today's rising interest rates suggest it would be smart to lock in a fixed rate. * Is there a pre-payment penalty? Young college graduates often find their incomes rising as they start climbing the career ladder. That may put them in a position to make larger payments and satisfy their loan earlier than originally scheduled. * Does the lender reduce the interest rate when a borrower establishes a record of on-time payments? * How long does the lender take to turn around an application? That could be especially important in the face of the pending July 1 rate increase. Given the current robust economy with parents and students readily finding jobs, it might seem demand for student loans would shrink. Not so, Blattman says. "The borrowing need is probably higher than ever," he says. "The cost of college education can be prohibitive. How many people can spare $100,000? There's been a bull market over the past few years, but you really need to start saving for your kids college education the day they're born. "Some people are fortunate enough they don't need it (a student loan). But in 75% of the cases there is some sort of borrowing." Blattman says the typical student loan consolidated by CFS is $33,000. But it's not unusual to see students graduate with $100,000 in loan debt. -
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