- Woman sleeping in car accused of attacking Cape officer (7/26/16)13
- Seeking new history: Centurion Development buys former Woolworth building at 1 N. Main St. (7/28/16)5
- Prosecutor says shooting by state trooper was justified (7/24/16)15
- Cape resident gets seven years in prison for shooting at man (7/26/16)1
- Former Scott City mayor refutes claims made about loss of curbside recycling pickup (7/26/16)
- Burglary of trailer leaves its residents homeless (7/27/16)4
- Golden Corral coming to Cape; may hire 100 workers (7/21/16)10
- Police: Child's video revealed stepfather's abuse of sibling (7/28/16)3
- Foot plots provide habitats and nutrition to attract wildlife, grow populations (7/18/16)
- City may spend extra park tax money on Cape Splash, skate park, other projects (7/25/16)10
Loan rate change brings student rush
For two weeks, Tom Gallagher didn't have much success reaching his son and daughter, who are working at a camp deep in the Adirondacks.
Cell phone reception is weak. Internet access is limited. Still, the Mitchellville, Md., father sent several e-mails reminding them to consolidate federal student loans before higher interest rates kick in Friday.
"I've been pushing both of them to try to do that," said Gallagher, who did the same with $71,000 in parent loans last month. To his relief, his daughter e-mailed this week to say they're taking his advice.
They'll join tens of thousands of borrowers rushing to roll old loans into a new one and lock in the lowest interest rates in the federal program's 40-year history. Federal student and parent loans carry a variable rate that's adjusted each July. The loans are set to jump nearly 2 percentage points -- the first increase in five years and the largest in more than two decades.
It became clear months ago that rates were headed up. Schools and lenders alerted borrowers; the U.S. Department of Education sent out 1.3 million e-mails urging students and graduates to consolidate and switch to a fixed rate before it's too late.
Borrowers got the message.
"The number of applications that we are generating has tripled," said Kathy Claar, the consolidation business unit manager in Richmond, Va.
"There is an absolute crush of people," said Michael Hernandez, assistant director of loan services for North Texas Higher Education Authority. "It really kicked in a couple of weeks ago when the new rates were announced."
The Arlington, Texas, not-for-profit is handling 600 calls a day, three times the norm. Hernandez usually doesn't man the phones, but "everyone has to pitch in and help ... I'm a little hoarse."
The new rates, which will be in effect for a year, are based on the last 91-day Treasury bill auction in May. Come Friday, the interest rate on more recent federal Stafford loans will automatically jump from 2.77 percent to 4.7 percent for students in school or those in deferment and grace periods.
The rate for borrowers already repaying on student loans will rise from 3.37 percent to 5.3 percent. And for parents with a Parent Loan for Undergraduate Students, or PLUS loan, the rate will jump from 4.17 percent to 6.10 percent.
By consolidating, borrowers get a fixed rate based on a formula. For instance, students in college or recent graduates in a grace period can lock in a rate of 2.875 percent on Stafford loans. Those already in repayment can fix their rate at 3.375 percent.
New graduates with $20,000 in Stafford loans can save nearly $4,700 in interest over 20 years by consolidating now, according to Sallie Mae, a loan provider. Those in repayment would save about $5,100.
Some borrowers report the process is a breeze, taking 10 to 20 minutes either on the phone or online.
Amanda Graham in Columbus, Ohio, combined five loans totaling $15,000 online about three weeks ago. "It took about 10 minutes. It was easy to do," said the 24-year-old who graduated two years ago.
"It's like a sigh of relief to know that it was done. I should have done it a month ago," said Elisha DeNeal, a parent in Fredericksburg, Va., who figures she spent three hours on the phone -- minus a half hour dinner break -- with her lender last week.
Through a three-way phone conversation with her Fredericksburg lender and her son in Washington, DeNeal applied to consolidate her $14,000 in parent loans as well as his $33,600 in student loans.
With such high demand, long waits can be a problem. Hernandez said his organization is taking applications from borrowers who couldn't get through to some larger lenders.
To speed up the process, lenders often steer customers to Web sites where they can fill out an application online.
Other factors are motivating borrowers to act now, too.
In mid-May, the U.S. Education Department said students can consolidate loans through private lenders while still in school, an option only available previously to those in the government's direct lending program.
And Congress is weighing proposals to revise the rules on consolidation next year to lower the cost to the government, which subsidizes low-rate loans. One proposal would give borrowers the option of consolidating with a variable or fixed rate, although the latter would be at a somewhat higher rate.