Options for Hefty Student Loans

Q: I have about $14,000 in student loans, all with variable interest rates that are now about 4%. I haven’t been paying any of them because I’ve been in school, but I recently became a part-time student and I received a notice from the lender that I will have to start making payments.

As a single mother earning less than $20,000 a year, I barely make enough to raise two children, much less make big payments. Any pointers that you could provide?

A: You’ll want to act fast to lock in the low interest rate you currently enjoy. The rate on federal student loans is expected to jump July 1, perhaps by 2 percentage points. That could greatly increase your interest costs over the life of these loans.

Right now, you can lock in a payment of about $142 a month. After the rates climb, your payment could be $155. Over the 10-year course of the loan, the difference could cost you about $1,600.

In addition, Congress is talking about eliminating the option of fixed-rate consolidation loans. In the future, all student loans may well be variable, and that could expose borrowers to big swings in their payments.

Those who act by July 1, however, will still be able to enjoy the benefit of a low-cost, fixed-rate consolidation loan. Consolidating now could help you avoid the expected stampede as borrowers rush to take advantage of this narrowing window of opportunity.

Once you’ve locked in your rate, you can explore other options. Lenders offer a variety of payment choices, including plans that are based on your income and others that allow you to defer payments for as long as three years, based on economic hardship. For more information, you can contact the Department of Education at (800) USA- LEARN (872-5327) or by visiting http://www.studentaid.ed.gov .

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