Variable Rates on Stafford, PLUS Loans to Increase Slightly

Variable interest rates on Federal Stafford and PLUS loans issued prior to July 1, 2006, will rise slightly, effective July 1. Based on the results of today’s auction of 91-day Treasury bills, the rates on these variable rate loans will rise by 8 basis points (8/100 of 1 percent) beginning July 1 through June 30, 2008.

Given the very slight increase in student-loan interest rates, there may not be as strong a financial incentive as in previous recent years for borrowers with variable-rate loans to consolidate their loans prior to July 1 to “lock in” a lower rate. Consolidation-loan rates are based on the weighted average of the loans being consolidated, rounded up to the nearest one-eighth of 1-percentage point.

On the other hand, borrowers with variable-rate Federal Stafford loans issued between July 1, 1995, and June 30, 2006, may obtain a slightly lower rate by consolidating their loans during their grace period. Borrowers with fixed-rate PLUS loans issued since July 1, 2006, may benefit from consolidation, because the maximum consolidation-loan rate of 8.25 percent is lower than the 8.5-percent fixed rate on PLUS loans. Moreover, borrowers still may benefit from the longer repayment period and resulting reduced monthly loan payments that they may obtain through loan consolidation, regardless of the interest rate.

Borrowers should be directed to an online consolidation-loan calculator, such as the one on the USA Funds Web site, to estimate interest costs and payment amounts and determine if loan consolidation would be beneficial.

Newly issued Stafford and PLUS loans in the Federal Family Education Loan Program will continue to carry fixed interest rates of 6.8 percent and 8.5 percent, respectively.

View a summary table of the new rates, which are unofficial until published by the U.S. Department of Education.