Interest Rates Double on Student Loans

Congress Doubles the Interest Rate on Federal Student Loans

How many of you are paying off student loans? In my experience, some of my clients' school loans are large enough to be a house mortgage. Now imagine your monthly interest loan payment doubling in several months. As part of our GK family, we like to keep you updated on legislation that will have a large impact on many families.

Beginning July 1, 2012, interest rates on federally subsidized Stafford loans will DOUBLE from 3.4% to 6.8% unless Congress acts quickly to extend federal legislation passed in 2007 that has progressively lowered rates to 3.4% this year. This change primarily affects the 7.4 million low income and middle income students who take out loans every year. Not only does the cost of college tuition increase around 6%-8% a year, but it is also becoming increasingly more expensive to take out loans.

For the first time, student loan debts reached $1 trillion in 2011. That amount is growing quickly. More troubling is a new survey that reveals that students are generally confused and ill-informed about the real cost of the money they borrow. It is not only the students who are applying for student loans. Parents often take out loans for their children, or they co-sign on their children's loans, or both. Parents may sacrifice their retirement savings or may decide to work longer, which is not the ideal situation.

Student borrowing has doubled in a decade, averaging $25,000 for student loans. Student loan debt has surpassed credit card debt! This loan crisis causes young people to start their adult life deeper in debt, and may financially cripple them for years. They may delay life-cycle events, such as buying a car or a home, getting married, having children, and saving for retirement. Loan defaults have risen from 6.7% in 2007 to 8.8% in 2009. It is important to highlight that school loans cannot be shed in bankruptcy proceedings.

There is no better gift than the gift of education, and there is no better time to start saving than NOW. In 15 years, at 6% inflation, the cost of UCLA including room and board will be nearly $300,000 for 4 years of undergraduate education. Are you prepared for that bill? The sooner you save, the less you will need to save over time. You can help reduce your child's future financial burden, and will also allow more choices for your child to pursue his or her dreams. I understand the education costs that my family will eventually face and am preparing by already saving for my un-born child's college education!

If you want to give the gift of education and you need independent and objective advice, our GK advisors know which options are available for you to ensure your child's educational future.

Francine Lai
Gerber Kawasaki Wealth Management
2716 Ocean Park Blvd. Ste. 2022
Santa Monica, CA 90405
(310) 441-9393

Securities offered through LPL Financial, member FINRA/SIPC. Investment advisory services and fixed insurance offered through Gerber Kawasaki, Inc., a registered investment advisor and separate entity from LPL Financial.

This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. Investing involves risk including potential loss of principal.