May 27, 2005
University of Maine at Fort Kent officials are making known to their students and alumni a quiet announcement made by the U.S. Department of Education earlier this month that could save borrowers hundreds of dollars on their college loans.
The news applies to students and recent graduates with Stafford loans from banks or commercial lenders, and could significantly impact the amount they will pay back over the life of the loan.
Payback on the government-backed loan program is based on an annual variable interest rate that is reset every July 1. In recent years that rate has been on the decline, but this year it is expected to rise by nearly two percent, from 2.77% to 4.61%.
However, borrowers who owe at least $5,000 may be able to freeze the rate at, or just slightly above, their current rate under the Consolidation Loan Program.
"Eligible borrowers can take out a fixed rate consolidation loan to pay off their variable rate Stafford loans and then the rate for the consolidation loan will remain fixed for the entire time it takes the borrower to pay off the loan," said Ellen Cost, UMFK financial aid officer. "This presents many of our current students and recent graduates with a great opportunity to save money."
For many Stafford borrowers, the consolidation loan opportunity was limited to students who were no longer in school. The May 16 announcement by the Department of Education extends this offer to currently enrolled students.
Cost and other campus officials are getting the word out about the unique opportunity by alerting current students directly through their campus e-mail account and through the local media.
"We urge all students and graduates to consider this option," said Cost. "Borrowers should contact their loan service organization immediately time is of the essence here. Paperwork must be complete and at the lender by June 30, or you will not get these low rates. You also don't want to wait until the last minute as lenders will be very busy in the next few weeks with thousands of these applications."
Cost encourages all students to carefully consider all the information the lender provides before making a final decision.
"One particular down-side you need to consider is that while Stafford loans have a six month 'grace period', consolidation loans do not. In other words, you have six months after leaving school to get a job and begin repayment. On consolidation loans, repayment begins as soon as you leave school."
The process students must follow to consolidate and lock in the payment begins with a request to their respective loan servicer to have Stafford loans put into early repayment and then that the loans but put into "in-school" deferment.
After this has been taken care of, students must apply for the consolidation loan on the Stafford loans at the deferment interest rate, and finally request that the consolidation loan be put in "in-school" deferment to avoid having to start repayment immediately.
UMFK students with loans through SallieMae are encouraged to visit that organization's website at www.smartloan.com/student. The website for students with loans through Nelnet is www.nelnet.net. Borrowers from a Maine Credit Union are encouraged to call 1-800-370-3472. Students uncertain of their lender should visit www.studentclearinghouse.org/secure_area/loan_locator.asp.
UMFK students with further questions can contact the financial aid office at (207) 834-7605. Students attending other institutions are encouraged to contact their school's financial aid office for additional information.
According to recently released figures by the Department of Education, as of April 1, there were 5.7 million borrowers nationwide with outstanding loans from private lenders who were either in school or in the post-graduation grace period.