Fred Harteis News Articles - How to save thousands on student loans

Fred Harteis News Articles - If you've borrowed money from Uncle Sam to finance your education or your child's, you might be able to save yourself thousands of dollars.

The trick: consolidating your federally guaranteed, variable-rate loans between now and June 30.

Here's why: your payments will go up on July 1 due to an increase in loan rates. Those rates are reset every year based on the yield on 3-month Treasury bills as determined by the last T-bill auction in May, which occurred Tuesday.

That yield was 4.84 percent, up 1.84 percentage points from the end of May last year. Hence, the repayment rate on the federal loans for students known as Stafford loans will rise to about 7.14 percent from 5.3 percent currently.

If you start repaying your loans while you're still in school or up to six months after graduation, known as the grace period, you get a lower rate. That rate will rise to 6.54 percent from 4.7 percent.

Meanwhile, the rate on student loans for parents, known as PLUS loans, will rise to roughly 7.94 percent from 6.1 percent. This year's rate increase is second only to the record 1.93 percentage point increase in 2005, said Mark Kantrowitz, founder of FinAid.org and author of the upcoming book "FastWeb's College Gold."

When you consolidate, you roll all your loans into one and lock in a single rate on the money you owe. If you consolidate your loans now, you can get a rate of 5.38 percent for regular student loan repayment, and 4.75 percent if you're still in school or in the grace period. That applies to Stafford loans obtained after June 1998.

Come July 1, those rates will jump to 7.25 percent and 6.625 percent, respectively.

For PLUS loans, the consolidated rate, currently 6.125 percent, will rise to 8.00 percent in July.

Here's what that means in dollars: Say you have $20,000 in 10-year variable rate Stafford or PLUS loans. If you consolidate before July 1, you could save roughly $20 a month in payments and about $2,300 in interest over the life of your loan.

If you have $100,000 in loans, as many medical students do, multiply those savings by 5. You'd save close to $100 a month, or about $11,500 in interest over the life of the loan.

Source: Cnn.com

About Fred Harteis: Fred Harteis leads Harteis International. Fred Harteis has a background in agriculture and has created many successful business ventures.