Jump in interest rates leaves students on loan scrambling

Loan interest rates are on the rise - and that means indebted students, including those at the University of Nebraska-Lincoln, will have to pay the price.

Interest rates will jump 40 percent on July 1, due in large part to U.S. Department of Education's annual adjustment of interest rates on federal student loans, specifically Stafford and PLUS loans.

The rate jump has frustrated many University of Nebraska-Lincoln students.

After July 1, undergraduates who took out Stafford loans - the largest federal loan program - will see the rate jump from 5.3 percent to 7.14 percent. PLUS loans, taken out by parents, will jump from 6.1 percent to 7.94 percent, according to the U.S. Department of Education.

For Stephanie Robinson, a UNL junior elementary education major, the interest rate hike is a major problem.

"My education is almost completely paid for by loans," Robinson said, "so this interest rate raise is very frustrating for people like me."

Like many students at UNL, Robinson has not yet consolidated, or refinanced, her loans.

Eric Solomon, a spokesman for Nelnet, an education finance company based in Lincoln, strongly advises students to consolidate. Loan consolidation places a fixed rate on loans, so students who consolidate can lock in their rate before the July 1 rate hike.

Come July 1, Solomon said, students with loans will definitely not want to be at their current variable rates.

Solomon also advises students who are planning to consolidate to do it as soon as possible.

"Students should act now," said Solomon. "There will be a big rush right before July 1."

Andrea Myers, a senior family science major, had not really given a thought to loan consolidation.

"I'll be graduating in December, so I guess we just didn't worry about it," Myers explained.

Solomon said students could save more than $5,000 dollars on a $20,000 loan with consolidation.

"If you don't consolidate now, you would basically be losing $5,000," Solomon reasoned.

To learn more about loan consolidation, Solomon recommends talking to a trusted lender and discussing possible options. The lender will be able to advise if loan consolidation is a smart choice and can lead the way from there. Every lender has benefits that can bring rates down, explained Solomon, so it is a good idea to shop around.

Craig Munier, Director of Financial Aid, warns against choosing a lender based solely on incentives.

"Some lenders offer incentives such as reducing the interest rate for timely repayment. Students should be cautious of this," Munier advised.

Munier explained two important reasons students should be careful when choosing a lender with incentives.

"One is that a small percent of borrowers actually satisfy the terms for receiving incentives. Two is that if the lender decides, without your permission, to sell your loan, the sale could cancel the borrower benefits," Munier said.

Students are advised to consolidate with the federal Direct Loan consolidation. More information on Direct Loan consolidation can be found at the Office of Scholarships and Financial Aid.

Solomon said students should figure out their options and act on them before that deadline of July 1, when the interest rates will drastically rise.