After July 1, students who borrow money to pay their college expenses will notice an about 2 percent increase in interest they will pay on those loans.
After the deadline, Stafford Loan interest rates will increase from 4.7 percent to 6.8 percent. The interest rate on Federal Parent PLUS Loans for Undergraduate Students will increase from 6.1 percent to 8.5 percent.
John Nickless, senior student lending representative for Comerica Bank in Auburn Hills, said he urges students to consolidate their loans before the deadline to "lock in" lower interest rates.
"Any new loan taken out after this will have a fixed 6.8 percent interest rate," Nickless said. "For the past few years, loans have been at variable rates. The law changes variable rates to fixed rates."
The federal Higher Education Act was created in 1965 to help low- and middle-income students attend college and be able to handle tuition rates during their college careers. In 1998, the interest rate change was written into the law so that in 2006, all student loans would convert to this fixed-rate schedule.
"Typically, students will borrow throughout their college career," Nickless said. "They'd consolidate their loans after graduation, but students used to be able to consolidate loans while they were still in school. It was a loophole in the system. This change closes that loophole."
Nickless said students need to pay attention when consolidating loans because of the "single-holder rule," which says if all of a student's loans are owned by a single entity, then that student is required to first apply for a consolidation loan with that entity.
"If you have loans with more than one entity, then you are free to shop everywhere," Nickless said. "That rule is not changing on July 1. It's going to continue."
University officials said they've "expressed dissatisfaction" with the change and are trying to raise students' awareness of the new law.
"We are making our opinion very clear to those who are involved that these are student loans, education loans, and that the interest rates need to be as low as possible," said Rick Shipman, MSU's financial aid director. "Because of the way federal student loans work, students don't have a lot of choices."
Shipman said there are two versions of borrowing money from a federal program.
"One has you borrowing directly from the federal government," he said. "The other has you borrowing through a lender acting on behalf of the federal government."
Since 2003, the university has participated in the commercial-lender version of the program, Shipman said.
"We previously worked with the federal government," he said. "The reason we switched was the state was willing to work with the schools to provide the best terms and conditions in the country. The students or the parents who are borrowing do not pay any borrowing fee."
Because most loan repayment plans last for 10 years, if the loan is repaid on time for the first three years of the program, the interest rate goes to zero for the last seven years, Shipman said.
The best way for students to combat the increasing loan interest rates is to talk with legislators about their personal situations regarding college expenses, Shipman said.
Student government officials said they are working to raise awareness.
"The Office of Financial Aid has been holding meetings in Student Services for people that are going to graduate," said Jason Ardanowski, director of university, governmental and budgetary affairs for ASMSU, MSU's undergraduate student government. "Congress can decide to do whatever it wants. This time, we had a Congress that decided to give students a raw deal."
