CBS News
Botches Simple Math
Interest rate on student
loans will go up, but not double, on July 1.
by Todd
Drenth
June 27, 2005
The CBS Evening News added hype to the July 1 interest rate hike
for student loans on its June 26, 2005, broadcast.
Trish Regan reported that 2005 graduates and current
students will experience sticker shock when they see the interest
on their debt nearly double, from 2.9 percent to 4.8 percent.
The increase wont amount to doubling, however.
Rising from 2.9 percent to 4.8 percent is a 66 percent increase. For
the rate to double, it would have to increase by 100 percent,
raising it to 5.8 percent.
Washington Post finance columnist Michelle Singletary
put it accurately in a June 20 column: Effective July 1, the new
variable rate on federally backed student loans will increase by
1.93 percentage points to 4.70 percent for current students and
recent graduates.
Without a doubt, the rate increase on student loans is
of serious concern to current students and recent graduates, many
who finish school with tens of thousands of dollars in student loan
debt. As CBS anchor Mika Brzezinski said, time is money for those
who are able to consolidate their loans at the present historically
low rates before they increase on July 1.
However, unlike Singletarys column and an article by
Susan Tompor in the Detroit Free Press June 27, CBS provided no
information on how students could go about consolidating their debt
or find more information. And while most college students are used
to waiting until the last minute, consolidating student loan debt is
a little different than cramming for a test or putting off a paper
until the night before its due.
The current situation is unique not only because the
historically low interest rates are about to increase for the first
time in five years, but because the Department of Education is
helping students under the Federal Family Education Loan Program to
take advantage of the low rates by allowing students to consolidate
while still in school. By law, federal loans can only be
consolidated once, as Singletary noted, which makes the present
opportunity particularly valuable to current students.
In Tompors article, Sallie Mae spokeswoman Erin
Korsvall pointed out the financial consequences of failing to act
quickly to take advantage of the low rates. According to Korsvill, a
2005 graduate with $20,000 in student loans will pay $6,321 in
interest at the current rate of 2.875 percent over 20 years.
Meanwhile, if the same recent graduate waits until after the rates
jump to 4.75 percent on July 1, the slacker gets socked with
$11,019 in interest, as Tompor put it. CBS also showed the
consequences of waiting to consolidate.
The biggest shock may come to the students who finally
experience the price of procrastination or rely on the media to do
the math.
For more information on loan consolidation, see
Michelle Singletarys column:
and
Susan Tompors column:
