College just got more expensive for adults pursuing a higher education.
That’s the word from economists after an almost 2-percentage-point interest rate increase for federal student loans went into effect on July 1. For borrowers who missed the deadline, it could cost them thousands of additional dollars in interest once they enter the workforce.
The rate poses a double whammy for career college students. This traditionally older crowd might also be carrying other types of adjustable rate loans on which they will now be paying more.
“Career school students are likely to be older and have more responsibility,” said Sandy Baum, an economics professor at Skidmore College in Saratoga Springs, New York. “They may have a mortgage payment that is going up, too.”
Baum also serves as financial aid analyst for the College Board education association that produces the SAT college entrance exam. She said students from for-profit colleges borrow more on average than students from other types of schools.
“If you graduate with Bachelor or Master degrees from a career school, you acquire a lot more debt and have higher debt levels than students with similar degrees from other institutions,” Baum said.
The rush to refinance created the sort of panic one might associate with final exam week. Only this test involved a deadline with much higher stakes.
Thousands of applications for student loan consolidations have bombarded organizations such as the Missouri Higher Education Loan Authority (MOHELA), the nation’s 12th largest student loan holder.
“The business over the last month has been the equivalent of about 10 months worth of business,” said Raymond Bayer Jr., executive director of MOHELA. “It’s just been incredible.”
Bayer said MOHELA has received about $750 million in consolidation loan volume in the last 30 days. By comparison, so far in 2006, the average volume per month has equated to about $90-100 million.
According to CNN.com, the variable rate on a common Stafford loan dipped to as low as 2.77 percent for students in the 2004-2005 school year and 3.37 percent for graduates already making repayments. Those rates rose again last year to 4.7 percent for students and 5.3 percent for graduates.
This latest jump – to 6.54 percent for students and 7.14 percent for graduates – continues the trend of rate rising.
Baum said that the reaction to the student loan rate rise has been exaggerated compared to the interest rate rise of other loans. Still, she said the impact cannot be underestimated for career college students.
“It will certainly have quite a measurable impact on them,” Baum said.