By JACK PALMER
palmer@crescent-news.com
College students seeking federal loans for their education received a welcome boost this week with the reduction of interest rates.
Effective July 1, the rate for new subsidized Stafford loans for undergraduate students dropped from 6 percent to 5.6 percent.
"This is a fixed rate for the life of the loan," said Amy Francis, director of financial aid at Defiance College. "There were many years when federal loans were variable rates. Being fixed is a big benefit for student borrowers."
Subsidized Stafford loans are based on need, but many students qualify. Those who do not fully qualify may still receive a financial aid package which in-cludes both federal subsidized and unsubsidized loans.
"The fixed rate on unsubsidized loans is 6.8 percent, which is still pretty good," said Francis. "Both the subsidized and unsubsidized federal loans are figured on a 10-year payback which doesn't start until graduation or the student is no longer attending school at least half time."
Under the new regulations, all Stafford borrowers will receive a .5 percent break on up-front borrower fees for loans taken out after July 1. The lender fees are deducted from the loan amount when it's disbursed.
Francis noted that the news for student borrowers is even better for the 2010-11 and 2011-12 academic years, when the fixed rate on subsidized federal Stafford loans decreases further to 4.5 and 3.4 percent, respectively.
"We encourage students to file a FAFSA (Free Application for Federal Student Aid) every year," said Francis. "It's really to their benefit because there are so many changes in the financial aid regulations from year to year. The worst thing that can happen is to decide to turn down a loan for which they qualify."
FAFSA is the form used by the U.S. Department of Education to determine a prospective student's expected family contribution (EFC) by conducting a "need analysis" based on financial information which the student (and parents if he/she is a dependent student) are asked to provide. The form is submitted to a federal processor contracted by the Department of Education and the results are electronically transmitted to the financial aid offices of the schools that requested by the student.
"It's still not too late to file a FAFSA and receive a financial aid package for the fall semester, said Cindy Krueger, vice president for academics at Northwest State Community College. "It only takes about 3-5 days for the information to come to the college, and no more than a couple of weeks for the financial aid package to be prepared and sent to the student."
"With the economy the way it is, this is a great time to go to school or return to school to refine your skills," added Krueger.
The other major financial aid option is Federal Family Education Loans offered by private lenders and guaranteed by the government.
"Even compared to the unsubsidized rate (6.8 percent) Stafford loans typically have lower rates than private loans," said NSCC financial aid counselor Amber Nicholls. "With private loans, they also generally take a harder look at the person's credit."
There is also good news for borrowers who took out a student loan prior to July 1, 2006. The new repayment rate is 2.48 percent, down from 4.21 percent. Similarly, rates on federal PLUS loans (Parent Loan for Undergraduate Students) issued before 7-1-06 has dropped from 5.01 percent to 3.28 percent.