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Act Now to Cut Student Loan Debt

Kate Traynor

On July 1 each year, the world of finance has an unusual effect on the lives of student-loan holders. That is the day the government changes the annual interest rates for PLUS and Stafford loans to reflect the recent change in interest rate for three-month U.S. Treasury bills.

This year, the news for students is good: The new interest rates for PLUS and Stafford loans will drop by 2.2 percentage points in July. Although this is a reason to celebrate, Washington Post columnist Jane Bryant Quinn advises borrowers to be aware of ways to secure even lower loan repayment rates.

Set up automatic payments. By having your monthly loan payment deducted directly from your bank account, you can do more than save postage costs—you can have your interest rate reduced a quarter of a percentage point.

Consolidate payments. Instead of making payments for several individual student loans, consider consolidating your education debt into a single loan. By consolidating after July 1, you can take advantage of the new, lower rate, which will be in effect for the life of your loan.

Do it now. Borrowers who consolidate their Stafford loans within six months of leaving school can have their interest rate reduced by 0.6 percentage point.

Be Direct. The government’s Direct Loan Consolidation program offers a 0.8-percentage-point discount on loans consolidated by Sept. 30. Borrowers who make timely payments for the first 12 months after the consolidation maintain the lower rate, but the rate goes up if any of the first 12 payments are more than six days late.

Pay on time. If you consolidate through a group other than Direct Loan Consolidation, you may be eligible for a lower rate than your present one if you have established a prompt payment record for two or more years. Consult your lender for more information.

Although the news about loan rates is good, ASHP’s Government Affairs Division (GAD) reports that the outlook for loan deferment during residency training is not so bright. According to GAD, most students whose loans disbursed funds after July 3, 1993, must make their scheduled loan payments throughout residency training.