When congress cut federal funding from student loan programs, they raised interest rates for Stafford loans from 4.7% to 6.8% and PLUS loans from 6.1% to 8.5%. These rates will go into effect on July 1, 2006.
A student with a balance of $10,000 upon graduation, taking a full ten years to pay off the loan, will have to pay more than $1,200 in additional interest with the higher Stafford interest rate.
I will be completing my master’s degree a few months after the rate increase, which means that if I am using financial aid, then I will get stuck with the rate increase. When I first started attending graduate school, I was advised to use financial aid even though my company reimburses 90% of my tuition. I take the financial aid at the beginning of the year, and the money is sent directly from the government to the school. When I am billed for tuition and “books,” the funds are taken from my financial aid account. When each class finishes, I apply for reimbursement from my company.
This is the school’s preferred method. Each year, there’s a fee for receiving the financial aid, not to mention interest charged. If I pay for the tuition up front and take the reimbursement myself, I could save money by avoiding fees and interest. I will look into the pros and cons of this adjustment in the next few months.
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