Interest rates set to rise two percent

Students using federal loans to pay for college will soon have more than final exams to worry about.

Interest rates on such loans are set to significantly increase as of July 1.

For the almost 9,000 Penn students using some form of federal loan program to pay for their education, the increase will mean greater debt after graduation than they may originally have planned for.

The rise in interest rates is the result of the passage of an annual bill in Congress that readjusts the interest rates for each year. The increase, according to financial experts, reflects a global increase in loan interest rates.

It is estimated that almost 60 percent of undergraduate students take out federal loans for college.

For most students currently in school, the increase may come as a shock, but according to Sharon Pepe, Penn senior director of student loan operations, rates in recent years have been "historically low."

After July 1, interest rates will jump by almost two percent. For the two most common types of loans for Penn students -- student loans and parent loans -- the new interest rates will be 6.8 and 8.5 percent, respectively, Pepe said.

Pepe estimated that around 8,000 undergraduate and graduate students at Penn are using student loans and between 750 and 850 families use parent loans.

The average loans vary depending on year and program. For undergraduates, the amount ranges from the freshmen year maximum of $2,500 to the senior year maximum of $5,500.

Graduate student loans depend more on the degree program, but the amount is usually between $18,500 and $38,500, according to Pepe.

As an solution, students can opt to consolidate their loan interest rates. This means that they agree to a fixed interest rate, which will be lower than the new rates, for all loans taken out prior to July 1.

Erin Korsvall -- a spokeswoman for Sallie Mae, which advertises its loan consolidation programs -- said in an e-mail interview that there are benefits and also downsides to consolidation.

If rates decrease next year below the consolidated rate, for example, students would not be able to unconsolidate to take advantage of the change, Korsvall said.

The benefits of consolidation, Korsvall said, include a longer repayment term and rates that will be at least lower than the upcoming year's rates.

Pepe agreed that consolidation is one of the more attractive options that students can choose. She also said that many banks and financial groups offer special repayment plans, and that students should research all of their options.

There had been rumors that Congressional leaders were going to try and reduce the rate, but Pepe added that this was very unlikely at this point.

During the past year, student political activists had tried to rally support for the Democrat-backed efforts to pass a reduction bill.

College junior and Pennsylvania College Democrats Vice President Nathan Hake said in an e-mail interview that the rate increase is "highly unfortunate" and the result of partisan politics.

Although the rate increase will mean students pay more for college in the long term, Pepe said that students "shouldn't be frightened."

"In the past, loans have been at higher rates, and Penn students have had a good history of repaying loans," Pepe said. "Students are probably going to find this manageable."

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