New Federal Law Could Increase Student Loan Costs

Washington, DC - Jan 04/06 - Congress recently passed new legislation in December 2005 that will cut billions of dollars in funding from the United States federal student loan program. It has been estimated that more than $12 billion dollars could be slashed from the program's budget and cause the program to make cuts. This means that graduates will likely face increased interest rates when paying back loans.

As the new law stands, a graduate will no longer be able to lock in their interest at a fixed rate. This is unfortunate considering the currently low interest rates we are seeing today. As a result, graduates could expect to pay substantially more interest over the life of the loan. For instance, an individual with a student loan of $10,000 could expect to pay an additional $1,000 over and above the usual interest costs.

Under the new federal law people can expect to have an interest rate of between 6.5% - 7.0%. However, the current federal law allows people to consolidate their loans and lock in at an interest rate below 4%. Considering that most college and university graduates leave school with at least some debt, this could be a major additional cost to many people. Therefore it is important for graduates to lock in their loans now if possible, before the new law comes into affect. This could save them thousands of dollars over the term of their loans.

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