Students with direct loans or parents with PLUS loans have the opportunity to reduce their interest payments by consolidating, or refinancing, their loans through the Department of Education.

From now through Jan. 31, 1999, those students who choose to consolidate their direct loans or PLUS loans will acquire an interest rate set at 7.46 percent. This is down from the prior rate of 8.25 percent.

“Now is the time for borrowers to take action and refinance their loans,” said Robert Johnson, enrollment service adviser. “This offer applies to applications received by the end of January, so students and parents should act quickly to meet the deadline.”

Students who do not consolidate their loans will remain at the 8.25 percent interest rate.

A savings of $500 per $10,000 of debt over a 10-year repayment period will accumulate due to the new interest rate, according to a press release.

Earl Dowling, director of Student Financial Aid, said the average Iowa State student leaves college with a debt of $16,786 not including his or her parents’ debts.

“In the 1997 to 1998 academic year, 950 parents borrowed [a total of] $4.4 million under the PLUS program,” Dowling said. “[While] 78 percent of students [at ISU] have some form of financial aid.”

Of this 78 percent, 15,000 undergraduates and 1,200 graduate students are taking advantage of financial aid.

Johnson believes the money students will be saving by consolidating is “nothing to sneeze at.”

Direct loans are funded by the government and include the subsidized Stafford loan and the unsubsidized Stafford loan.

“Basically, it is a loan that is not through a private lending institute such as a bank,” Johnson said.

PLUS loans are taken out by the parents on behalf of their college students.

“If [parents] consolidate their loans, they will also receive the 7.46 percent rate down from the 9 percent cap,” Johnson said.

A controversy between the Federal Family Education Loan Program (FFELP), or private institutions, and the Direct Loan Program caused the reduction in the interest rates, Johnson said.

“The Direct Loan [Program] is cheaper and has a lower interest rate because it eliminates the middle-man, which is the lending institution,” Johnson said. “The private lending institutions said it wasn’t fair that the [Direct Loan Program] was offering lower rates. The compromise was negotiated as part of the Higher Education Act.”

The Higher Education Act, which passed the week of Oct. 5, is a compromise between the two programs, in which the direct loans can remain at the 7.46 percent rate until Jan. 31.

After this date, all direct loans must equal the private lending institutions rate at 8.25 percent.

Consolidation is not recommended for students who have the Perkins Loan, Johnson said.

“The interest rate on the [Perkins Loan] is 5 percent, and consolidation will move it to 7.46 percent,” Johnson said.

Borrowers who want to take advantage of the lower interest rate can access an application online through the Department of Education’s consolidation Web site at www.ed.gov/DirectLoan, or they can call (800) 557-7392 to have an application mailed to them.