Interest rates on student loans reach all-time lows


RESTON, Va., – Student loan interest rates have dropped up to 2.2 percentage points – reaching historic lows and offering lower payments to millions of borrowers in and out of school.

Lower payments.

Federal Stafford loans issued on or after July 1, 1998 now have an interest rate of 5.99 percent, down from the previous rate of 8.19 percent. These reductions for variable rate loans benefit borrowers who are in school, repayment or deferment.

“Sallie Mae borrowers who are already in repayment automatically will see a reduction in their monthly payment now that the new rates have taken effect,” said Patricia Scherschel, loan consolidation executive for Sallie Mae.

Sallie Mae, the nation’s leading provider of education funding, offers comprehensive information about the interest rate change, as well as repayment calculators, on its Web site,

PLUS loans.

In addition to Stafford loans, interest rates on Federal Parent Loans for Undergraduate Students (PLUS) issued on or after July 1, 1998 fell from 8.99 percent to 6.79 percent, making it an attractive time for parents with college-bound children to select a low-cost PLUS loan for last-minute funding.

Interest rates on federal education loans are set by Congress and vary annually based on short-term Treasury securities, plus a margin.

Stafford loans are capped at 8.25 percent, and PLUS loans do not exceed 9 percent. Interest rates that went into effect on July 1 will be valid through June 30, 2002.

Loan consolidation.

Some borrowers also may consider consolidating their student loans – paying their current loans in full and creating a new loan.

The new loan will feature the combined balance of the previous loans, as well as a weighted average of their interest rates, rounded up to the nearest one-eighth percent, not to exceed 8.25 percent.

While consolidation may be an option for borrowers who are heavily indebted, serious consideration should be given before they make the decision to consolidate.

Call for help.

Individuals can speak with Sallie Mae’s loan consolidation experts by calling toll free, 800-448-3533, Monday through Friday, 9 a.m. 9 p.m., ET.

“Borrowers should seek expert advice before consolidating their student loans, since they will be ineligible to take advantage of potentially lower rates in the future, and may forfeit certain interest subsidy, forbearance and deferment options,” Scherschel continued.

“While consolidation may lower a borrower’s monthly payment, it also will likely extend the repayment term, which easily can double the amount of interest to be paid over the life of the loan.”


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