Ball State students who are under the Federal Direct Stafford Loan or PLUS Loan programs can expect to see a 2 percent increase in loan interest rates beginning July 1.
The new interest rate for the Stafford loan, which currently has a rate of 2.77 percent, will be around 5 percent. The 4.17 percent-rate PLUS loan -- which allows parents to borrow money to help pay for students' educational expenses -- will have a new rate of around 6 percent, Robert Zellers, director of the Office of Scholarships and Financial Aid, said.
"We're really low," Zellers said. "It's going up some, but it hasn't gotten anywhere near its ceiling -- it's limit -- but that could happen."
According to federal regulations, 8.25 percent is the maximum rate for the Stafford loan, while 9 percent is the cap for the PLUS loan. While interest rates have not climbed that high since 1997 or 1998, rates are increasing and are expected to continue rising, Zellers said.
"It is going to change, and I certainly believe it's going to go up in this coming year and in the immediate future," Zellers said.
Sophomore Aaron Fredrick, political science major, uses both Stafford and PLUS loans for his tuition, he said.
"Of course I don't want interest rates to go up," Fredrick said. "But if they have to go up, they have to go up, and I guess I would hope there wouldn't be any needless increases to student loans."
More than half of Ball State students are on federal loan programs, Zellers said. In fact, students borrowed almost $50 million from Stafford between 2003 and 2004, while parents borrowed $26 million from PLUS, he said.
"That's a lot of money," Zellers said. "That's why it's so important, because it affects a lot of people."
Loan interest rates are based annually on a 91-day T-bill, or treasury bill -- a debt instrument used by the government to raise capital. The T-bill is auctioned off and the auction price sets the interest rate for federal student loans, Zellers said. The government will sell this year's T-bill at the end of May.
Students might consider consolidating their loans before July 1 to lock in a single, fixed interest rate and save money, Zellers said. Consolidation involves combining the Stafford Loan with the Federal Perkins Loan -- a 5 percent interest loan for students with financial need, he said.
Congress might soon decide, however, that all Federal Student Consolidation Loans will have a variable rate after July 1, 2006, instead of a lower fixed rate, Zellers said. When students finish college and pass the six-month grace period before having to repay their loans, they will likely end up paying back the loans at a higher rate than current debtors are paying, he said.
"Congress feels that a fixed consolidated rate is costing a lot of money," Zellers said. "Instead of using all that money to benefit students who are already in payment, (they feel) that the money should be used for students who are in college or for needy students who want to come to college. But I don't know if that would happen or not. There is no guarantee they would use those savings to fund programs for needy students."
If loan interest rates continue to rise, Zellers hopes for students' sakes they will climb slowly, he said.
"Obviously I hope it wouldn't increase greatly; I'm just afraid that it will."
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