Kevin McCormally: I am Kevin McCormally of Kiplinger's and I am with Jane Clarke, Associate Editor of Kiplinger's Personal Finance magazine to talk about student loans. Jane, big change in the Federal Student Loan Program, effective July 1st of this year, what's the change?
Jane Clark: Well, the rates are now fixed and they have gone up by about 2 percentage points.
Kevin McCormally: In the past, the student loans were had variable rates that adjusted every July 1st, now for new loans they are going to be fixed for the life of the loan?
Jane Clark: That is correct.
Kevin McCormally: What is this to the strategies for parents and students going forward when it comes to borrowing to pay for college?
Jane Clark: Well, it's possible that at some point, the rates on Stafford loans will be higher than loans from private lenders.
Kevin McCormally: Now the Stafford is the one for that the student takes out.
Jane Clark: Right.
Kevin McCormally: Okay.
Jane Clark: Right but Stafford loans are still a good deal because they allow students to differ their payments and also to extend their payments out making them more manageable month to month.
Kevin McCormally: So when it comes to Stafford loans, you have to look at more than the rate. What about the PLUS loan, the Federal Student Loan for parents?
Jane Clark: The PLUS loans could potentially be higher than rates on private loans, so...
Kevin McCormally: ...so parents need to look at the alternatives. What about homemake reliance and credit? Does this bring them back into the game as for is paying for college?
Jane Clark: Yes, parents should take a look at that option, the interest rates could be lower than a PLUS loan and also the interest is deductible.
Kevin McCormally: So a combination of tax savings and lower rate is just going to save money on this huge expense.
Jane Clark: Right, right.
Kevin McCormally: Thank you very much, Jane.
Jane Clark: You are welcome.
Transcription by:
Scribe4you Transcription Services