Saturday, September 02, 2006

About Your College Loan

The cost of college loans has just gone up … in a big way. Earlier this year, Congress voted to overhaul the federal student loan program. As of July 1, 2006,

* interest rates on federal Stafford loans to students increased from 5.3 percent to 6.8 percent (a fixed rate that replaced a variable rate).

* interest rates on PLUS loans to parents increased from 6.1 percent to 8.5 percent.

* a graduate paying off a $20,000 loan at 6.8 percent over 10 years pays $7,619 in interest. paying the same loan over 30 years requires nearly $27,000 in interest--more than half the total payment.

Loan rates used to be determined by the market. Borrowers could consolidate loans when rates were low and lock in that rate for the life of the loans. Now, the higher rate will be fixed for the life of the loan. Lenders can keep the difference as profit.

Today's students who borrow money for college carry an average debt of nearly $20,000, according to the College Board. But many students graduate with more than $40,000 of debt. The average debt for a college graduate has gone up 50 percent in the past decade, according to the Project on Student Debt.

Source: Career World, Sep2006

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