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A Federal Student Loan Could Soon Cost You More for Deferments

Posted on Mar 18, 2013

Federal student loans in deferment or forbearance can cause interest to mount up during the period of time that they are in effect.  The same is true for the "grace period" between graduation and the loan falling due.  The only exception is a subsidized Stafford loan in a deferment.  In that case, the federal government pays the interest.  What's even better, these loans are currently at 3.4% interest, and have been since 2007, while unsubsidized loans are at 6.8%.  A win-win!

The really great thing about this is that accrued unpaid interest capitalizes into the loan if not paid during the grace period, deferment, or forbearance.  This means that it is added to the principal balance of your loan, so you owe even more when you go back to making payments!  So subsidized loans can be very helpful!

What's Changing?

Well, that could change this summer, as reported by the New York Times in their Money section on March 13.   On July 1, rates on subsidized loans under the Stafford program are scheduled to go back up to 6.8 percent for new loans made after June 30.

If this happens, you will end up paying more for the loan in interest when it is not in deferment.  As noted in the article, the US Public Interest Research Group (PIRG) has estimated that the lower rates this academic year saved nearly 8 million students about $1,000 each on their loan costs.

How Would This Affect Me?

In essence, what is happening here is that you will be paying more in interest on your loan in order to avoid the capitalization of interest during deferments.  That is why PIRG is urging Congress to make this lowered interest rate permanent.  Anyone still in school who is looking to apply for a subsidized Stafford loan for next year should keep an eye on this issue!

If you live in New Jersey and are having problems with federal student loan debt, I may be able to be of assistance. Just download this questionnaire, fill it out, and then fax it to me at 856-686-9911 or e-mail it to me. I will then review it to determine if I can be of assistance and contact you to discuss representation.

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