USA Funds Web Site Can Aid in Efforts to Help Cut the Cost of Borrowing for College

From students taking out education loans for the first time, to recent graduates, to borrowers in repayment, education-loan borrowers can benefit from advice about how to reduce their costs of borrowing for college. 

Financial-aid administrators can remind borrowers that, since July 1, 2006, interest rates on new Federal Stafford and Federal PLUS loans have been fixed at 6.8 percent and 8.5 percent, respectively.

Borrowers who have Stafford or PLUS loans issued prior to July 1, 2006, should be advised that their interest rate will continue to be variable. The rate will be adjusted annually effective July 1, based on prevailing interest rates on short-term government securities.

The “Borrowers” section of the USA Funds Web site offers a summary table with information about current interest rates on variable-rate Stafford and PLUS loans.

The following are cost-cutting items that financial-aid administrators can recommend that their borrowers consider:

• Reduced loan fees. Financial-aid administrators can remind borrowers that, effective July 1, 2007, a federal law reduces the maximum origination fee that may be charged Federal Stafford-loan borrowers to 1.5 percent. Some lenders may subsidize all or a portion of this origination fee. The same law requires that education-loan guarantors collect a 1-percent Federal Default Fee on all Federal Stafford and PLUS loans that they guarantee. In some cases lenders or guarantors will pay this fee.
• Borrower benefits. Some lenders offer interest-saving borrower benefits. Typically, these benefits provide a reduction in the interest rate for borrowers who permit their loan payments to be deducted automatically from their bank account or consistently make on-time loan payments for several years.
• Student-loan-interest deduction. Borrowers may qualify to deduct up to $2,500 of the education-loan interest that they paid during the tax year, subject to income limits and other restrictions. Recent tax-law changes enhance this student-loan interest deduction by eliminating the 60-month limit on deductible interest previously in effect and by permitting certain higher-income taxpayers to qualify for at least a partial deduction. Borrowers don’t have to itemize deductions to claim the student-loan interest deduction; however, they must file Form 1040 or Form 1040A. Borrowers who are married must file jointly to claim the deduction.
• Federal interest subsidy. Students who qualify for subsidized Stafford loans can receive a substantial savings in interest. For an undergraduate student who borrows a total of $10,000 over four years of college, the interest subsidy on a subsidized Stafford loan could produce interest savings of more than $2,000.

On its Web site, USA Funds provides borrowers with a broad range of tools and information that can help them borrow wisely and repay their education loans in a timely manner — from a site that permits them to check the status of their loan applications, to loan-repayment and loan-consolidation calculators, to tips for saving money and avoiding identity theft.