The student media organization of California State University Northridge

Daily Sundial

The student media organization of California State University Northridge

Daily Sundial

The student media organization of California State University Northridge

Daily Sundial

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Stafford Loan interest rates set to rise July 1; consolidation urged

Though federal Stafford Loan interest rates are scheduled to increase July 1, students have an option to protect themselves: consolidation.

With the July 1 increase being the largest in two decades, financially dependent students have the choice of consolidating their student loans before the lower rates disappear, according to Noelia Gonzalez, a senior counselor for the CSUN Financial Aid Counseling service.

By consolidating their federal loans, students can effectively combine multiple loans into one new loan with a fixed interest rate and new repayment terms that can produce lower monthly payments.

The Stafford Loan interest rate for CSUN students who have not yet begun repayment will rise from 2.7 percent to 4.7 percent after July 1, Gonzalez said.

“The rate is still incredibly low, although not at the historic lows we have recently witnessed,” said Diane Ryan, interim director of Financial Aid and Scholarships, in an e-mail interview.

Gonzalez recommends against using a small loan company when consolidating Stafford Loans.

Instead, she said students should “stick with a lender that CSUN has pre-screened and guarantees good quality” for consolidation.

The lender list available in the Financial Aid office includes Bank of America, Washington Mutual, Citibank, Bank One, Chela Financial and Wells Fargo, among others.

Dina Collins, Business Banking specialist at a Wells Fargo branch in Lancaster, said “those (students) who consolidate before the July 1 rate increase can significantly lower the amount of interest paid over the existence of the loan.”

For example, if a student were to consolidate his or her $20,000 loan before the deadline, he or she would only have to pay $5,540 in total interest.

However, if the loans were not consolidated before July 1, the student would owe $9,400 in total interest.

One negative effect of consolidation is the disappearance of a grace period after graduation.

“When students consolidate their loans, they’ll immediately go into repayment,” Gonzalez said. “It’s a lengthier process.”

Although CSUN did not mail out any notices of the newly increased interest rates like some banks did, the university hosted a consolidation workshop before commencement ceremonies this month.

“We hosted a workshop to explain the process that was well-attended,” Ryan said. “Our website also contains information on consolidation.”

Stafford Loans are available for U.S. citizens or permanent residents who are at least part-time undergraduate students taking six units or part-time graduate students taking four units, with both having to meet satisfactory academic progress requirements.

The amount of money students are loaned depends on their academic status.

Dependent students can be given up to $23,000 through a subsidized (need-based) loan such as the Stafford Loan. Independent undergraduate students can be loaned a maximum of $46,000, which is $23,000 subsidized and $23,000 unsubsidized (non-need-based).

“Many students have subsidized student loans on a (financial) need basis,” Gonzalez said.

Students with subsidized loans are not charged interest before repayment begins or during the time of loan repayment postponement. The federal government subsidizes these loans.

On the other hand, unsubsidized loans are not granted because of financial need and can be issued to any eligible student. Students will be charged interest from the moment the loan is first paid out to the time it is repaid in full.

Students have approximately six months after graduation before the repayment of the loans begins, Gonzalez said. The basic repayment of a Stafford Loan is a term of 10 years, and extensions are available for students who consolidate.

Gonzalez said more students have come into the Financial Aid office recently with a lot of interest in talking about consolidation because of the letters sent out by the banks.

“I’m seriously going to look into consolidating my loans now that I know I can save money,” said Nicole Hefferan, senior liberal studies major. “I wish I found out earlier.”

“There really is not much that students (or anyone else for that matter) can do about rising interest rates because they are strictly a function of the economic factors that drive them,” Ryan said.

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