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Students loan interest at all-time low

Grads and near grads: Think consolidation

by Marc Gonsalves


From a financial stand point there has never been a better time to go to college than right now. On July 1 the interest rate hit an all-time low of 3.37 percent for all Stafford loans. Rates fell across the board in Parent loans, Stafford, and Plus loans. Students with unsubsidized Stafford loans will see their rates drop from 2.82 percent to 2.77 percent while attending school.

Stafford loans fall into two categories depending on the students’ need for them. The first type of Stafford loan is one that is subsidized, meaning that the federal government will not charge any interest while the student is attending college and before repayment begins on the loan.

Students who are unable to demonstrate the financial need required for a subsidized loan must turn to an unsubsidized Stafford loan. In this case interest will be charged while the student is still attending college. The rate of 2.77 percent applies during the unsubsidized period (while the student is still attending classes), and it will automatically increase to 3.37 six months after the student graduates or when repayment by the student begins.

Over the past four years federal student loan rates have become more student friendly. In July of 2000 the Stafford loan rate was a whopping 8.19 percent. The next two years saw the rates go all the way down to 4.06 percent. In July of 2003 the rate was at 3.42 percent. These rates are affected by changes in the federal rate which as been going down over the past four years. The rate for student loans again dropped in 2004 because of the weighted average of the fed rate over the last year. Student loan rates could increase in July of 2005 due to the increase in the fed rate that is now occurring.

Plus loans have followed the same pattern as Stafford loans over the past four years. Plus loans have always seen a slightly larger interest rate because Plus loans are initially given to the parents. Plus loans were also at an all-time low rate of 4.17 percent starting July 1.


The reduced interest rates make this a good time for students and parents to consider consolidating student debt. The deadline to do so is June 30, 2005.

Essentially consolidation occurs when one lender buys all of your loans and turns all of them into one, easy-to-manage loan.

Consolidating may be the right decision for someone who has many loans. Perhaps the most important reason to consolidate is to pay less interest or to reduce monthly payments. According to Sallie Mae, the nation’s leader in education funding, consolidation can reduce monthly payments by up to 45 percent. This is an ideal situation for anyone planning to graduate within the next year, or a recent graduate approaching his/her six-month grace period.

Once loans are consolidated, the repayment period will begin. Students still attending college should not consider consolidation unless willing to accept the burden of repayment.

To learn more about consolidation for your student loans check out or Or contact Sallie Mae directly at 1-(800)448-3533.



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