Student Loan Interest Rates at All-Time Low

SPRINGFIELD – Students who have borrowed federal student loans with variable interest rates will see a substantial reduction in their loan interest rates starting July 1.  Due to a recent auction of 91-day Treasury bills, the interest rates on federally-backed Stafford student loans, which are tied by formula to those rates, will decrease from the current 5.99% to 4.06%.  The new rate, effective July 1, 2002 through June 30, 2003, is the lowest interest rate in the federal student loan program’s thirty-seven year history.  Student borrowers who are currently enrolled in college will see an even lower automatic reduction in their interest rate, as low as 3.46% from the current 5.39%. 

Students who have recently graduated and are still in their six-month grace period after leaving school will also benefit from the lower interest rate.  The federal government provides student loans with variable interest rates, meaning that the interest rates may change on an annual basis.  For students who want to take advantage of the historically-low interest rates, they should consider consolidating their student loans with their lender to lock-in the new rates and thus be -more--2-immune to any future rate increases.  By consolidating, a student takes out a new loan, at a lowered interest rate, to pay off the old loans and consequently keeps the new fixed interest rate until the loan is paid off. 

Once borrowers consolidate their loans, though, they cannot consolidate again, except in certain circumstances such as returning to school and borrowing new loans.Over 198,000 students hold federal variable rate loans guaranteed by the Illinois Student Assistance Commission (ISAC), totaling more than $2.1 billion, that are either currently in repayment or expected to move into repayment status between July 1, 2002 and June 30, 2003.  If those students locked in the new interest rate, each borrower could save about $1,133 over ten years for every $10,000 borrowed. 

According to ISAC, the average cumulative debt borrowed by an undergraduate student after four years of college is now over $15,000.The lowered interest rates will automatically apply to eligible student loans, so students do not have to do anything to take advantage of the new rates.  Borrowers who are interested in consolidating their student loans to lock in the new rates should contact their lender to begin the process.  If a borrower’s loan is held by ISAC’s IDAPP division, they can contact a representative toll-free at 800-366-5755 to discuss if a consolidation loan is appropriate for them.

About ISAC
The Illinois Student Assistance Commission is the State’s centralized provider of financial assistance aimed at helping students and families access postsecondary education and/or training. Each year, the Commission awards an estimated $400 million in scholarship and grant aid to nearly 185,000 qualified students, and also provides an additional $740 million to borrowers through its student loan programs. The agency offers credit-based alternative loans, a 529 prepaid tuition program known as College Illinois!, and a broad array of outreach and informational services to ensure that families have access to the information they need to pay for a college education. More information is available by calling toll-free 800.899.ISAC (4722) or visiting the agency’s Web site at www.collegezone.com.