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.