- The Washington Times - Friday, May 31, 2002

Interest rates on federally guaranteed student loans will fall July 1 to a historic low of less than 4 percent.

The drop in rates will likely spur more borrowing and encourage many with numerous existing loans to consolidate.

Government-backed Stafford loans will fall from 5.39 to 3.46 percent, according to Sallie Mae. Rates on student loans are reset every July 1 based on a formula tied to the rate on the 91-day Treasury bill at the end of May.

"This will help families when looking at how to finance the next academic year," said Steve Stocks, an executive with Sallie Mae. "As tuition bills start coming due, families are wondering how to put the final pieces together, and when they learn of the new interest rates they will realize [loans are] a very attractive financing vehicle for education."

Mr. Stocks heads the Parent Plus loan program at Sallie Mae, through which parents can borrow money to fund education costs covered by their child's financial aid.

Last year the interest rate for Parent Plus was 6.79 percent. On July 1 it will fall to 4.89 percent, according to Sallie Mae. Rates on private student loans, typically higher than government-backed loans, also will decline slightly.

"Any loan that is a variable-rate loan will benefit from fact that we're at record low interest rates right now," said Greg Stringer, senior vice president of education finance at National City Bank, one of the nation's 10 biggest student loan providers.

"But the real bargain happens to be for students who are extending their repayments by taking advantage of the consolidation program," he said.

The rate on repayment of Stafford loans, which have variable interest rates, will decline to 4.06 percent from 5.99 percent. The year before, the rate was 8.19 percent.

It's the perfect timing for consolidation, because of the low rates and because it's a way for students to extend the life of their loans, said Sarah Bauder, associate director at the financial aid office at University of Maryland at College Park.

From 1980 to 1998, average annual public college tuitions jumped from $1,696 to $3,512, or 107 percent, according to the National Center for Public Policy and Higher Education, a nonprofit organization based in San Jose, Calif.

The volume of consolidation has been growing steadily as tuitions continue to rise, said Patricia Scherschel, consolidation product executive at Sallie Mae.

That trend should continue as more borrowers see to capitalize on the lower rates, she added.

About half of College Park's class of 2002 has loans, averaging $5,400 per student, Mrs. Bauder said.

That's lower than the national average for undergraduates of $17,000 from public universities and about $19,000 from private colleges.w

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