Wisconsin Bankers Association: Federal student loan interest rates to double; graduates must borrow wisely
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MADISON - Interest on federal student loans is set to double (from 3.4 percent to 6.8 percent) on July 1 if Congress does not extend the lower rate. That increase - the equivalent of an additional $4,600 in interest payments for those who borrow the maximum amount - affects almost every student with loans, since the federal government has a near-monopoly on the market. It is more important than ever for college-bound high school graduates to carefully consider how much they should borrow to pay for higher education.
While most banks no longer extend student loans, they are familiar with weighing the value of taking on debt. Students must also consider the value of their investment, weighing the total cost of their education against their earning potential after graduation to determine how much they should borrow. Researching the average starting income of several professions within the student's field of study is a good way to start, especially if the graduate does not have a specific career in mind. In general, students should borrow no more than their anticipated starting salary. The U.S. Bureau of Labor website (bls.gov) and Salary.com are reliable resources for finding this information.
"Student loans are an investment in your education and your future," said Wisconsin Bankers Association president and CEO Rose Oswald Poels. "To avoid taking on more debt than you'll be able to pay off, get help from someone who understands finances, whether it's a family member, a friend or your local banker."
On average, each student borrows $25,000 to attend college - double the figure from a decade ago after adjusting for inflation. To avoid problems down the road, potential borrowers need to understand the terms of each loan. It can be much easier to seek advice from a personal banker than to navigate the customer service channels at large loan servicing companies.
"Talk to your banker about the interest rates each loan will have, when payments will come due, if there are any grace periods and the potential for consolidation later on," said Oswald Poels. "Make sure all your questions are answered before you sign on the dotted line. Getting the facts on technicalities now can prevent a lot of stress and increased costs later."
The Wisconsin Bankers Association is the state's largest financial industry trade association, representing nearly 300 commercial banks and savings institutions, their nearly 2,300 branch offices and 30,000 employees.