If you or someone you know is a college student or graduate with outstanding student loans, time is running out to lock in a low, permanent rate.

As of last summer, the interest rate on new Stafford loans was switched from a “variable” rate based on market conditions, to a “fixed” rate of 6.8 percent. The rate on PLUS loans (parental loans used to pay college expenses), which also used to vary, was fixed at 8.5 percent.

This means that students who were in college prior to fall 2006 probably have a mixture of both variable and fixed-rate loans.

It’s the interest rate on outstanding variable loans that is going up July 1st. And, if you do nothing, the rates on these older Stafford and PLUS loans will continue to fluctuate.* Although recent graduates have a 6-month “grace” period before they need to begin repayment, consolidating your variable loans before rates go up will save a significant amount of money in the long run.
You also have the right to request that your lender re-pay your existing loans until the end of your grace period. This is known as a “grace hold” and it’s not optional. If you ask for this, your lender must do it. This allows you to get the lower rate and keep your grace period.

“If you’re just coming out of school, you have a two-tier rate structure,” says Patricia Scherschel, vice president of loan consolidation for Sallie Mae, the government-backed student loan program.

Tier one is the rate you pay while you’re in school and during the 6-month grace period after you graduate. While this is currently 6.54 percent, it increases to 6.62 percent July 1st. If you’re a recent grad, when your grace period expires in the fall this rate will increase to 7.22 percent — unless you consolidate.

Consolidation means a lender pays off your existing loans and gives you a new loan for the total amount. The new loan will come with a new, fixed interest rate and generally a longer re-payment period, up to 30 years instead of ten. (Caution: If all you make is the minimum monthly payment, stretching out the term of your loan means you will ultimately end up paying more because the interest accumulates for a longer period of time. What you want to do is pay more than the schedule they give you.)

According to Scherschel, you can lock in a “significantly lower interest rate” by consolidating your variable rate student loans by July 1st.

Since the interest rate you get on a consolidation loan is based upon a weighted average of all your variable rate student loans, your rate might be different from a classmate’s. However, you can get a good idea of what this will be by visiting the web-based “Repayment Optimizer”.

Shop around. You may be surprised how willing some lenders are to negotiate. Start by asking your current lender about the terms they can offer. If you used someone other than Sallie Mae you can instantly find out how their loan package compares by entering some basic information.

Don’t just consider the interest rate. If you sign up for electronic payments via a bank account, lenders, including Sallie Mae, typically immediately knock a quarter of a percent off your rate. Once you establish a record of making on-time monthly payments, many will reduce it a full one percent. So your total reduction could be 1.25 percent.

But with July 1st just a few days away, the most important factor to consider at this late date is how fast a lender can process your loan consolidation application. Since time is of the essence, submitting your paperwork online may make all the difference.

Scherschel says applications submitted via Sallie Mae’s Web site before midnight June 30th will qualify for the lower rates currently in effect. And you will get an instant confirmation emailed to you so you know that your application was received.

New rules for UNC system financial aid officers ban gifts from lenders and require more transparency in how student loans are handled.

The standards, released quietly by UNC system President Erskine Bowles several weeks ago, have triggered a wide review of student loan practices throughout the state’s 16 public universities.

Some changes are certain, although North Carolina hasn’t had the problems that other states have. In New York, the student loan scandal has revealed kickback schemes, expensive gifts and stock offerings.

North Carolina financial aid officers say the 11-point memo is helpful, even if it serves only to make the rules clear.

“The directive emphasizes a point apparent to most families as soon as they apply for financial aid: The byzantine and bureaucratic process requires that families trust the university.

“Financial aid officers simply cannot abuse that trust,” said Kimrey Rhinehardt, UNC vice president of federal relations. “Parents and students can’t be expected to be the experts here.”

The new rules require that financial aid officers provide families with at least three lenders based on the best interest rates, fees, terms, customer service and borrower benefits.

The reasons for the recommendations must be “completely transparent” to families and UNC system officials, who will review the lender lists each year.

Families can recommend lenders that are not on the list.

Such rules were designed in response to an investigation by New York Attorney General Andrew Cuomo that revealed several examples of schools accepting gifts and other benefits in exchange for recommending lenders.

To address that problem, the UNC rules prohibit university employees from accepting any gift “other than advertising items of nominal value.” The language mirrors new ethics rules that govern legislators.

Financial aid officers can serve on advisory boards of private lenders, but they can no longer accept payment, beyond meals associated with the meetings.

Similarly, employees who participate in professional development conferences must pay their own way.

Those rules are designed to shut down practices such as lenders providing excessive payments for advisory board memberships and paying for conferences at swanky resorts.

The new rules come before families will have to rely even more on the advice of financial aid officers.

Congressional budget proposals working their way through committees could result in different loan packages — especially from private lenders — as well as new rules covering student loan forgiveness, bankruptcy claims and caps on monthly student-loan payments.

“The changes being discussed now in Congress could really benefit students,” said Steve Brooks, executive director of the N.C. State Education Assistance Authority.

“At the same time, families will need a lot of guidance to understand their options.”

The chairman of the U.S. Senate Banking Committee said on Friday he will introduce a bill that would impose new disclosure and conduct rules on the fast-growing private student loan market.
“This legislation will help to ensure that students understand the products they are buying to help finance their education, and that unfair and deceptive practices in this market are outlawed,” said Sen. Chris Dodd, a Connecticut Democrat and presidential candidate.

Dodd’s committee held a hearing on Wednesday to look into questionable practices in the private student loan market, which now accounts for 20 percent of lending to college students. The remaining 80 percent comes from government-guaranteed and direct government loans.

Dodd said his bill would “improve transparency, prevent unfair and deceptive private lending practices and eliminate conflicts of interest.”

The $85 billion student loan industry has been under investigation by congressional and state officials for months over alleged kickback schemes, conflicts of interest and, as of this week, possible discriminatory underwriting practices.

New York Attorney General Andrew Cuomo and congressional investigators have alleged some lenders paid kickbacks to college aid officers to curry favor and drum up business.

Some college officials allegedly took gifts, stock, payments and other perks. Several of these officials have quit their jobs, while many lenders and colleges have reached settlements with Cuomo and accepted a new code of conduct.

The U.S. House approved a bill to crack down on such practices last month, with a focus chiefly on the government-guaranteed loans market.

Applying Cuomo’s code to the private loan market, the Dodd bill would bar lenders from kicking back percentages of new loans to colleges in a practice known as “revenue sharing.”

It would prohibit co-branding in which lenders offer loans to students using the brands of the colleges they attend, and it would ban gifts or other inducements to college aid officers in exchange for preferential treatment.

Also banned would be lender use of underwriting data that could limit loan availability to students “based on race, age, and other personal factors, or the institution they attend.”

Lenders would also have to make disclosures about the terms of private student loans more complete and understandable.

Major student loan companies include Sallie Mae, Wells Fargo & Co., Bank of America Corp., Citigroup, JPMorgan Chase & Co., Wachovia Corp., SunTrust Banks Inc. and others.

Consolidate your private educational loans with Law School Loans and combine your outstanding private education loans into one loan, including private loans used to cover bar expenses and/or other educational expenses. All in addition to already consolidated private educational loans. By consolidating your private educational loans with Law School Loans, you can lower your monthly payment significantly by lengthening the term of your loans, while receiving a low variable interest rate. This is achievable even if your private educational loans are of different types or held by more than one lender.

Eligibility
Eligibility to consolidate private educational loans with Law School Loans is based on the following criteria:

• At least eighteen years old at the time of application
• Minimum of $10,000 in US issued private educational loans
• Repayment status of private education loans at the time of application
• Good credit standing
• US citizenship or eligible non US citizen (permanent residency)

Benefits
Consolidating private educational loans with Law School Loans permits several benefits.

• Using auto-debit with Law School Loans to repay your private consolidation grants a interest rate reduction of .25%
• Easy repayment terms
• Low, variable interest rate
• No penalties for prepayment
• One low convenient monthly payment to one lender rather than various monthly payments
• Law School Loans offers personalized and friendly customer service. One loan consultant works with you through the process of consolidation.

Process
Law School Loans makes the process of private loan consolidation quick and easy.

• Receive an instant credit decision, interest rate information, origination fees and borrower benefit information
• Receive a Master Promissory Note (MPN) via USPS. Sign and return within 90 days, and be updated with your loan approval and repayment information and repayment options.
• Receive an immediate rate reduction of .25% by signing up for auto-debit.

Tax Benefits
Consolidate your private education loans with Law School Loans and take advantage of tax benefits

• By way of the Taxpayer Relief Act of 1997, the Government now permits individuals to deduct the interest paid on loans taken out to attend eligible educational institutions
• Ability to deduct up to $2,500 in student loan interest. Taken as an adjustment to income, allowing the deduction regardless if you itemize deductions on Schedule A of your 1040.
• Deductions phased out for taxpayers with adjusted gross incomes of $50,000 to $65,000 [single filers] and $100,000 to $130,000 [married filing jointly]. Taxpayers who are married but file separate returns are not eligible.

There’s more bad news for home loan takers. The runaway rise in interest rates is set to be compounded by a new cess on home loans. Housing finance companies (HFCs) and commercial banks may have to contribute 1% of their annual incremental home loans to a new “safety fund” proposed to be created under the National Housing and Habitat Policy, which is awaiting final Cabinet nod. he fund is aimed at providing affordable housing to the economically weaker section (EWS). The mandatory contribution by home loan institutions will increase borrowing costs and is likely to lead to a further rise in interest rates of home loans.

The fund is proposed to be set up under the aegis of National Housing Bank (NHB). “All HFCs and commercial banks will be asked to contribute to the proposed fund. The move is expected to be implemented by the end of this year,” a housing ministry official told ET. The Centre will contribute an initial corpus of Rs 500 crore into the fund, he said. While most industry experts are yet to take a call on how much interest rates would go up after this move, most agree that the rise can be anywhere between 0.5% and 1%. “In the advent of some offsetting tax exemptions being offered by the government, the effect on the consumer could be lower. If, however, there are no benefits, we will have to pass the entire burde The move is aimed at bringing about more equality and removing indiscriminate home loan disbursal by banks and HFCs. It is also proposed that 25% of all new constructions in city dwelling areas should be kept aside for EWS, the housing ministry official said. “We have recommended necessary legislation and guidelines for all lending institutions that will have to contribute to the fund,” he added. n to the consumer,” an NHB executive said.

Home loans from market leader HDFC will cost more, with the lender announcing upward revision of interest rates. HDFC has increased its retail prime lending rate (RPLR) on which its adjustable rate home loans (ARHL) are benchmarked by 0.50 per cent, For all new home loan customers, the adjustable rate home loans will now be priced at 11.25 per cent while the fixed rates will be 13.25 per cent HDFC follows a three-month reset cycle for its floating rate loans and hence the change in RPLR will impact the existing customers only over the next three-month period based on their respective date of disbursement. HDFC said that “this is a moderate increase in the present environment keeping in mind the needs of our customers and their concerns.” Meanwhile, HDFC has also increased its rates on deposits by 0.75 per cent.

Even as major private sector home loan lenders are passing on the impact of a rise in cost of funds to their borrowers, there are a few public sector banks which are contemplating against raising floating home loan rates for their existing customers. While a few of them are planning to freeze the floating rate for small and medium-ticket customers for the time being, others are planning to launch separate schemes altogether to shield their existing customers. For instance, Allahabad Bank has announced a “freeze” in its home loan rates at the current level for the time being for borrowers up to Rs 10 lakh. AllBank has, on Monday, raised its benchmark prime lending rate (BPLR) by 75 basis points (bps) to 13.5% from the current 12.5%. The change in BPLR will, however, not be applicable to home loan borrowers up to Rs 10 lakh, the bank said. Bank of India (BoI), on the other hand, intends to link its floating home loan rates directly to its prime lending rate (PLR), whereas it maintains a floating reference rate (FRR) for existing home loan borrowers. It intends to keep its FRR unchanged at the current level or there would be a marginal increase, according to a senior BoI official. all public sector banks could play the same tune.

For instance, Uco Bank was considering to protect its existing home loan customers. However, after a detailed study on its cost of funds. There will be a matching impact on home loan borrowers, who have taken loans on floating rate basis. Significantly, nine out of 10 existing home loan borrowers are feeling the pinch with the latest rise in interest rates. For the simple reason that almost 90% of home loans borrowers have taken the loan on floating rate that are subject to frequent changes, following interest rate movements. In the private sector, ICICI Bank, which has the largest home loan portfolio, was the first to increase home loan rates to all new and existing customers. The bank’s home loans are now more expensive than rival HDFC’s and the revision may now see a rebalancing of its portfolio.

The government is planning to seek long-term loans from multilateral finance institutions such as World Bank and Asian Development Bank (ADB) to provide credit to domestic housing finance companies (HFC) at competitive rates. This would enable housing finance companies to provide home loans to customers at a much lower rate. The facility is being considered to provide cheap loans to first-time home buyers. “We are considering a proposal to provide housing finance companies direct access to cheaper credit contracted by the Centre from multilateral institutions for building infrastructure. Though the proposal is in initial stages of discussion, the issue is being pursued seriously to provide relief to the home loan segment,” an official of housing ministry told ET.

Home loan rates have moved up between 200 percentage points and 300 percentage points since one year. The current cost of fixed-rate home loans varies between 12% and 14%. The rates under floating option are slightly lower. Under the new system, housing finance companies could access funds at much lower rates of 5-8%. This would enable them to offer home loans at less than market rates even if a premium is charged on funds secured from multilateral agencies.

Amid increasing home finance interest rates, the urban housing ministry has mooted a proposal to provide loans at a discounted rate for first-time home buyers in urban areas. The interest discount would, however, be available only to families or individuals falling in a specified salary bracket and would be based on the affordability factor. The ministry has proposed that banks and housing finance companies could extend a discount of 1-2% to a family buying a house for the first time. Urban housing minister Kumari Selja confirmed the move. “Addressing the problem of urban housing shortage at an affordable price is our prime concern. With this in mind, we are working on various short and long-term strategies.

Interest rate subsidy for people with low affordability is also a part of the strategies,” she told ET. The discount offered by financiers would be met through interest subsidies provided in the Union Budget. Said a ministry official: “Financing home loans through interest rate subsidy will require a huge contribution from the Centre’s coffers.” The ministry is learnt to be working on the details and modalities of the proposal, which will come up for discussion next month with the finance ministry and the Reserve Bank of India (RBI). Although the government is yet to define the salary bracket of those who would be eligible for the discounted interest rate, it is likely to primarily target the economically weaker sections.

The boards of most public sector banks, which are scheduled to meet in the coming weeks to consider results for 2006-07, may now include on their agenda the review of home loan rate hikes. This follows the finance minister’s request to PSU banks not to raise home loan rates for those customers who have taken les State Bank of India, Bank of Baroda and Canara Bank are some of them which have raised home loan rates for all customers even the existing borrowers when they revised their prime lending rates in the wake of policy tightening by RBI.

However, other banks such as Allahabad Bank and Union Bank of India had refrained from raising rates for the existing home loan borrowers even while raising rates for new borrowers. Some banks such as Indian Bank did not raise rates at all, awaiting further policy directions. Earlier, the Alco Committee of SBI had suggested to the board of SBI not to revise the home loan rates for the existing customers.

However, considering the pressure on the margins, the board had decided to go ahead with a rate hike for all customers of SBI, including the home loan borrowers. “We believe unlike in the case of corporates where the interest component is not a very significant portion of the loan, in the case of retail home loans, EMI is a very significant portion of the income — sometimes even 50% of the income. So we have decided not to hurt that segment with a rate hike,” said MV Nair, CMD of Union Bank of India, which has not raised rates for the existing home loan customers in all brackets. In the last three months, banks have raised their prime lending rates two-three times. And each time, the rate hike was in the region of 50 to 100 basis points. Now, ICICI Bank is charging 14% for fixed rate loans, while its floating rate is pegged at 12%. By restricting rate hikes to borrowers above Rs 10 lakh, the public sector banks will be altering the terms of their contract with the borrowers. In terms of the home loan contract, floating rate loans were to be revised, following every revision in the benchmark rate.s than Rs 10 lakh loan.