Discover Private Student Loan Rates To Increase Sharply on June 1st

I saw this announcement sent out to schools today from Discover:

We are adjusting the interest rate margins for our new Certified Private Loans. This change is effective for applications received on or after June 1, 2009. The new interest rates will range from Prime Index + 1.00% to Prime Index + 7.75%.

We wanted to notify you in advance and assure you that this change affects only new applications and not existing loans or applications in process. We are not changing our commitment to schools or our efforts to promote responsible borrowing. And we continue to offer the same borrower benefits on all Certified Private Loans:

• Zero fees
• 2% Graduation Reward
• 0.25% Auto Debit Reward

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Here is the impact of this change on private loan interest rates for Discover:

• Current rates:  2.75% to 8.00%
• Rates as of June 1:  4.25% to 11.00%

This represents quite a significant change with rates on the low-end going up 1.50% and their maximum rate for private loans going up by 3.00%.  As readers of this blog know, a much higher percentage of loans are approved on the higher end of the interest rate range than at the teaser rate level. 

I had a hunch this might be coming, as I posted this on March 20th ("Are private loan rate increases looming?"): 

"I would not be surprised to see some of the lenders whose lowest rate offered is 200-300 basis points lower than the competition increase their rates."

Until these changes take place on June 1st, Discover's rates on private student loans are still among the best (4 star rating on SLA's Private Student Loan Ratings), so if you are certain you will need a private loan (having exhausted grants, scholarships, and federal loans), time is of the essence in taking advantage of these low rates.  SLA will be updating their ratings service when the new pricing takes effect on June 1st.