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Congress Raises Student Loan Interest Rates

This article was written by in Debt Reduction. 9 comments.

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.

Updated September 28, 2007 and originally published December 22, 2005. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .


avatar jim

I was under the impression the interest rates were going to be raised anyway.

avatar Luke Landes

That would make sense — but this was the first I’ve heard of the specific rates.

avatar Matt Hartrich - Buffalo, NY

Consolidate your student loan rates now!

avatar Retireat30

This is a yet another great example of how america is going to lose our competitive edge in the years to come.

We go to war – short term boost to economy, no fundamental boost to national productivity.

War + net tax cuts causes budget shortage.

Budget shortage aliveated by cutting funding to education, the small business administration, etc.

China continues graduating more engineers than us.

China becomes dominant economy, USA now an also ran in history. I don’t like this one little bit.

avatar Luke Landes

Retire, I agree. It doesn’t bode well for the United States in the first half of the 21st century. Perhaps 2006 will be the year I learn to speak Mandarin (but I doubt it).

avatar Luke Landes

As I found out this year, if a loan is still being disbursed, it is ineligible for consolidation.

avatar guyincognito

Most lenders will now allow you to consolidate early, before the new interest rates go into effect. In this way you can lock in your rate before the new rates kick in.

avatar jim

The lack of engineers is not the fault of the US government, it’s the fault of US companies and a child of the capitalist society we live in. Interest rates on loans of practically all kinds are at historic lows these last few years and the last few years is where we’ve seen the major slowdown in graduating engineers, so it’s not the loans.

avatar FMF

No matter the increased cost, your advanced degree (if selected correctly) will still be well worth it because of the increased earning power it will generate.