JULY 1 -- RATE CHANGE

As I've mentioned a couple times in the past few months, federal student loan rates would be dropping come July 1. The only question was how much (*recall that this only impacts federal student loans that were taken out before June 30, 2006 and have not been consolidated; this does not impact loans borrowed since then or previously consolidated loans. All federal loans borrowed after that are fixed rate, not variable rate loans). That 'hunch' will become a reality next week ...

July 1 is an important date not only because rates are set each year at that time. This year, July 1st also marks the date many professionals in public service careers can take a step toward loan forgiveness. Lets address these issues one at a time:

RATE DROP.
All unconsolidated loans origintated prior to 7/1/06 will have their rates reset to 4.21% (3.61% if you are in school or in your grace period); that is a full 3% less than this years levels (7.22% and 6.62%)! Federal loan consolidation is the only process available to lock in this rate.

OTHER NOTABLE LOAN ADJUSTMENTS ON 7/1.
- 'New' subsidized loan rates for undergrads will drop from 6.8 to 6%.
- Stafford loan fees will drop 1/2% point to 2% of amount borrowed.
- Undergrads can borrow $2,000 more per year in unsubsidized loans.
- Total undergrad loan borrowing limits will increase to $31,000 for dependent students; $57,500 for independent students.

LOAN FORGIVENESS STEPS.
If you're new to my financial tip or don't recall me mentioning the new loan forgiveness provisions available to some public service professionals, you will want to review the site -- http://ibrinfo.org -- which will provide detailed info as well as updates as new info becomes available ... this program is only available for people repaying through the Direct Loan program. Beginning on July 1, individuals that had previously consolidated with a private company in the FFEL program (i.e., Sallie Mae, Wells Fargo, etc.) will be able to reconsolidate into the Direct Loan program to be eligible for the public service loan forgiveness (http://loanconsolidation.ed.gov).

* Remember that to be eligible for the loan forgiveness, you need to be in one of three repayment plans: standard, income contingent, or income based (not available until July 2009). If you're in a different repayment option, you can switch to one of these plans at any time. Your ten years of "clocked" payment time (to meet the forgiveness criteria) could begin as early as last October (10/07) if you had been using one of these repayment plans [per prior tip instruction].

* If you are unsure of the types of loans you have or whether they have been consolidated, you can find out at NSLDS (http://www.nslds.ed.gov/nslds_SA/).

* The Project on Student Debt provides a nice overview of federal loan terms and rates for 2008-09 (http://projectonstudentdebt.org/files/pub/2008-09_loan_terms.pdf).