Can I still take out federal stafford loan under the interest rate's before the July 1st increase?

Question

I tried taking out federal stafford student loans for the upcoming fall semester. I sent in my request in late May to secure the interest rates prior to the July 1st increase. I was told that my interest rate would be at the increased 6.8% fixed rate because "my loans were disbursed no earlier than 10 days before my program starts."

What rule is this and is there any way to work around it so I could get the 5.3% rate, after all it is not July 1st yet?

Answer 1

The 6.8% interest rate applies to any loans “first disbursed on or after July 1st.” This has been already been written into the Higher Education Act. The *earliest* anyone’s loans can be disbursed is 10 days before the start of his/her enrollment period (i.e. the start of classes). So, unless you’re starting classes very, very soon, your loans must be subject to the new fixed 6.8% rate.

There’s really no point in hurrying or trying to find a way around the regulations. Even students who *can* have their loans disbursed before July 1st will still be subject to an interest rate hike.

The rate structure is fairly simple: for any loans first disbursed before July 1, 2006, the rates are *variable* and are based on the 91-day T bill. Since we already know what the T bill went for, we know that the rates on all variable loans [disbursed since July 1998] will be 6.54%.

To put it another way: even if you could get your hands on a Stafford loan with a 5.3% rate, it would only remain 5.3% for another 9 days. The only way to fix (“lock in”) this rate would be to consolidate before the rate increase… but you can’t consolidate a loan until it’s fully disbursed (which means waiting for the second disbursement to come through for [in your case, probably for the Spring 2007 semester]).

Just take the rate hike in stride – millions of students are in your same position. In the grand scheme of things, a fixed 6.8% rate isn’t so bad (people would kill for a credit card or car loan that low!)…

Answer 2

The rule comes from the federal government. Your loan is certified for a certain term. If that term happens to start after July 1 then your interest rate will be the rate that is in effect at that time...the 6.8% rate. You cannot work around this regulation since it is a federal statute as to how this works.

Answer 3

Nope, you won't get the money until its time to go to school. 5.3 is really low. The interest rate you actually pay at the end of your schooling depends on the economy, so in four years time the interest rate may be actually lower (if its lower make sure to consolidate your loans if all stafford under that lower interest rate). However, 5.3 percent is interest you pay only if you have a unsubsidized loan (you pay interest as soon as you get the loan) subsidized it won't matter what the interest rate is until you leave school.