by Simon W. Bouie
Staff Writer
Every four years, Congress passes legislation called the Re-Authorization of the Higher Education Act. This year Congress passed the legislation and the president signed the act, providing funding via government loans such as subsidized and unsubsidized Stafford loans.
Usually included in the act is an adjustment in the interest rate of these loans.
This year the variable interest rate for loans that have been disbursed after July 1, 1998, is 6.86 percent. It is adjusted every July and, at its maximum, will be no more than 8.25 percent. The interest rate is two-tiered, meaning that there is a rate of 6.86 percent while a student is in college. Once the student has completed their studies the rate increases to 7.46 percent.
Loans that were taken out prior to July of 1998 also will see an adjustment in their interest rates. The variable rates will range from 8.4 to the current 6.86 percent. While a student is in school they do not accrue any interest on subsidized loans. However, interest does accrue on unsubsidized loans and the rates vary depending on the time the loan was disbursed.
The federal government offers a consolidation program to students once they have completed their college studies. The interest rate on the consolidation program is a maximum of 8.25 percent. With conventional student loan lenders such as Citigroup, a student has 10 years to repay their loans in full. However, the federal program allows up to 20 years to repay the loans and it offers the student a lower monthly payment as compared to a lender like Citigroup.
Although there is more time to repay debt with lower monthly payments, persons choosing to reconsolidate their student loans through the government will pay much more interest over the 20 year repayment term than if they chose the conventional 10 year repayment plan.
The federal re-consolidation program is available to students who have either graduated or completed their studies. After a student has determined that they will not be returning to college they have six months in which they can take a deferment before their payments begin each month. It is at this time that a student would pursue the federal deferment.
According to Ed Mervine, ULV director of financial aid, “During your grace period, you need to contact the lender. It is between the borrower and the lender, the school is not involved in this process.”
Qualification for the federal consolidation is required for all applicants. Mervine said, “The most important requirement is that you are not in default of your student loans. You have to be in good standing with your student loans.”
Mervine said there are other criteria involved in the process but the most important is the issue of defaulting.
Included in the 1998 Federal Re-Authorization for Higher Education Pact for the 1999-2000 school year, a new federal program will be put in to place that will create a “master” promissory note. This means that as long as a student stays in the same college, they will only need to complete one loan application.
