The world of student loans just became more complicated and expensive for some borrowers, while others are about to get a great deal.
It all depends on whether you're borrowing now or dealing with loans from the past. Regardless, when you graduate college you should learn how you can stay out of debt.
Interest rates on variable-rate student loans will drop sharply on July 1st. That will make newer, fixed-rate loans look like a terrible deal, although for most borrowers, they're the "only deal in town."
Two years ago, Congress changed the student-loan program from a variable-rate deal based on Treasury bill rates to a fixed rate program at 6.5%. That rate now looks extremely expensive in comparison with falling interest rates in the marketplace. Still, those who have Federal student loans taken out after July 1, 2006, are stuck with those relatively high fixed-rate loans for the life of the loan.
The divergence becomes even more apparent because interest rates on older, variable-rate loans are about to be cut in half -- to 3.61% from the current 6.62% -- starting July 1. The cut comes because rates on those older loans are tied by formula to the T-bill auction that took place the last week in May.
That creates some interesting opportunities for those who borrowed in earlier years and are now graduating, as well as for graduates who have not yet consolidated their old, variable-rate loans. Not only will they get lower rates, they'll also have the opportunity to lock in those low rates for the duration of their loans.
