Student loan interest rates drop today

McALLEN — Denise Maldonado didn't find out about federal Stafford loans until her senior year at the University of Texas-Pan American.

Maldonado, a first-generation college student, made her way through two years at South Texas College and then through another year at UTPA using a combination of income from a part-time job and need-based Pell grants.

But when she qualified for a Stafford loan, she jumped at it. The interest rate was 6 percent.

"They were cheap already," said Maldonado, who graduated in December from UTPA with a degree in English and is looking for a job as a high school teacher. "The interest rate is really low now."

Maldonado is one of millions of Americans who used student loans to make it through college and stand to benefit from a law that will lower the interest rates on need-based federal loans and make monthly payments more affordable.

Beginning today, the interest rates on Stafford loans will drop from 6 percent to 5.6 percent, the first of four annual cuts that will drop the rate until it reaches 3.4 percent in 2011.

• Click here for more information on the changes

The cuts are part of the College Cost Reduction and Access Act that was signed into law in 2007 with key provisions going into effect this week.

In addition to the interest rate reductions, the law also caps borrowers' monthly loan payments at 15 percent of their discretionary income and increases the Pell grant for the upcoming school year an extra $600.

Other aspects of the law that have been in effect since 2007 are a loan forgiveness program for those who choose to go into public service careers - such as firefighters, public defenders and nurses - and a grant program for those who commit to teaching in high-need schools for four years after graduation.

The law makes higher education accessible for thousands of South Texans by making it easier for students from working- and middle-class families to pay for college, said U.S. Rep. Henry Cuellar, D-Laredo, at a news conference Tuesday at South Texas College.

Students from lower-income families can benefit from the larger Pell grants - distributed to college students based on need - while students who are eligible for the federal student loans will see an impact in the lower interest rates.

An interest rate reduction of about 3 percent "may not seem like much," Cuellar said. But "anybody who has borrowed money will tell you that means thousands and thousands of dollars over the life of the loan."

As a whole, the interest rate reduction means a hefty chunk of change will stay in the pockets of those who borrowed their way through college, said Charles Sorber, UTPA's interim president. The university's students borrowed $39 million last year, and 68 percent of the study body is on some form of financial aid.

Sorber said lowering the interest rates - and offering students other means to reduce college costs through Pell grants and income-based repayment plans - gives them an easier route to complete their higher education.

"As the interest rates are reduced, the burden of the families will be less and less," he said. "The people that need it the most will be assisted."

____

Jared Janes covers Hidalgo County government, Edinburg and general assignments for The Monitor. He can be reached at (956) 683-4424.