New England residents: We understand that a recent local news story on the upcoming student loan interest rate changes contained misinformation and may set false expectations for college students and their parents. We wanted to provide clarification on some of the information presented in the story (original information as it was presented in the news story is in quotations and italics).

“PLUS Loan interest rates will drop from 8% to 5%.”

Only variable rate PLUS loans first disbursed between July 1, 1998 and June 30, 2006 will see a drop in interest rate on July 1, 2008, from 8.02% to 5.01%. PLUS loans first disbursed on or after July 1, 2008 will remain between 7.9 and 8.5%.

“The loans are loans not borrowed through banks but are government loans that must be obtained through the school.”

Federal Stafford and PLUS Loans can actually be borrowed either through banks or directly through the government. Both types of loans require the student to fill out the Free Application for Federal Student Aid and must be obtained through the school. All Stafford and PLUS Loans are federally regulated and offer similar interest rates and repayment terms.

“Borrowers should wait until after July 1, 2008 to apply for their student loans in order to receive a 6% interest rate instead of 6.8%.”

Only subsidized Stafford loans for undergraduate students that are first disbursed on or after July 1, 2008, will be at a lower rate of 6% (down from 6.8%). The interest rates on Unsubsidized Stafford Loans (undergraduate and graduate) and PLUS loans first disbursed on or after July 1, 2008 will remain 6.8 and 8.5%, respectively. Please note that a student can apply for a loan prior to July 1; as long as the loan is first disbursed on or after July 1, the interest rate will still be 6%.

“Stafford borrowers who graduated between 1998 and 2006 should consolidate their loans, if they haven’t consolidated already, after July 1, 2008, in order to take advantage of a 4.21% interest rate.”

It is the date that a loan was first disbursed and not a borrower’s graduation date that affects the interest rate. Only Stafford loans in repayment status that were not previously consolidated and that were first disbursed between July 1, 1998, and June 30, 2006, would potentially be eligible to receive an approximate 4.21% interest rate. Stafford loans in grace, deferment, or in-school status that were not previously consolidated and that were first disbursed between July 1, 1998, and June 30, 2006, would potentially be eligible to receive an approximate 3.61% interest rate. Loans that are in an in-school status, however, cannot be consolidated.

The interest rate on a Consolidation loan is calculated based on a weighted average of all of the loans being consolidated rounded up to the next highest ⅛%, not to exceed 8.25%. Because of this calculation, the final interest rate on a Consolidation loan may vary.

“Stafford borrowers who graduated after 2006 could receive an interest rate as low as 3.6% if they consolidate.”

Again, it is the date that a loan was first disbursed and not a borrower’s graduation date that affects the interest rate. Only variable rate Stafford loans in grace, deferment, or in-school status that were not previously consolidated and that were first disbursed between July 1, 1998, and June 30, 2006, would potentially be eligible to receive an approximate 3.61% interest rate. Loans that are in an in-school status, however, cannot be consolidated.

Contact ASA’s Call Center at 800.999.9080 with any questions on federal student loans.