It’s crunch time for college students and people paying off student loans to lock in interest rates before they jump almost 2 percentage points Saturday.
Financial experts estimate the average student borrower, who owes about $20,000, would save $4,000 by consolidating loans before then.
“It really is kind of a no-brainer,” said Kathryn Powell, spokeswoman for CollegeInvest, a nonprofit division of the state Department of Higher Education. “We feel like it’s an opportunity that borrowers really shouldn’t pass up.”
Interest rates on Stafford loans in repayment will climb from 5.3 percent to 7.14 percent. For borrowers still in school, the rate will rise from 4.7 percent to 6.54 percent.
Interest rates also are spiking for federal loans to parents, called PLUS loans. They will jump from 6.1 percent to 7.94 percent.
It’s the second rate hike in two years for student loan interest rates, which are tagged to Treasury bills.
People with student loan debt can contact one of their lenders, Federal Direct Consolidation Loans or CollegeInvest.
Joel Anderson, a 33-year-old whose wife is about to have their sixth child, gets nervous thinking about the $91,000 he borrowed to pay for law school at the University of Denver.
The recent graduate is crossing his fingers he’ll pass the bar exam, land a job as an immigration attorney and make a salary fat enough that $500 monthly student loan payments won’t eat up family money for groceries and other living expenses.
“That’s the magic question,” he said. “It’s kind of freaking me out.”
Anderson estimates he would have paid up to $1,200 per month on nine student loans with fluctuating interest rates if he had not recently consolidated them. Through CollegeInvest, Anderson stretched the 10-year loans to 30 years and locked in the current interest rate.
In Colorado, 62,507 students, or 47 percent of all 131,882 college students in 2005, borrowed money to pay for school, according to the Colorado Commission on Higher Education.
Among the borrowers, the average loan amount for students earning two-year degrees was $8,707 and for four-year degrees, $17,208.
Parents of students earning a two-year degree in Colorado borrowed on average $8,021, and parents of students earning four-year degrees borrowed $19,000.
Colorado students are borrowing at about the same rates as students nationally, the commission said.
Financial aid advisers at colleges in Colorado said today’s students are more aware than ever that they should consolidate their loans after graduation or even during school.
They attribute that to the inundation of mail fliers from lenders stacking up in college students’ mailboxes like preapproved credit cards and offers to join music clubs.
At Colorado State University, the financial aid office has held workshops the past few months to answer questions about consolidation, associate director Christie Leighton said.
About 40 percent of CSU students take out loans to pay for tuition, and the average loan indebtedness for undergraduate students is $16,887.
Brendon Burchard, who holds an annual boot camp in Orlando, Fla., to teach students how to emotionally and financially handle college, said two-thirds of college students in the U.S. graduate with debt. On average, they and their parents owe $21,000, he said.
Staff writer Jennifer Brown can be reached at 303-820-1593 or jenbrown@denverpost.com.
