CBS News Botches Simple Math
Interest rate on student loans will go up, but not double, on July 1.
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: