05.12.08 | Re: Consolidating Now V. Waiting
I can see from the comments on the previous post that there remains a lot of confusion about when to consolidate. I will answer the questions to the best of my knowledge.
Given the current run rate of the Treasury bill, it looks as though variable student loan interest rates will most likely be going down significantly on July 1st. The last auction of the T-bill will be on May 31st, when the new rate is set. Is there a chance that the rate could go up? Sure – there is always a chance. But given the current trend, it seems very very unlikely. But don’t worry – since the rate is set on May 31st, you will still have all of June to start your consolidation in the unlikely event that the rate increases.
Anyone that has federal student loans taken out prior to July 1, 2006 and has not yet consolidated these loans will be effected by this rate change. So I advise anyone who is thinking about consolidating now, to wait until May 31st when the new federal rate is set. The new rate information will be posted on this blog, and also on SudentLoanConsolidator.com.
For everyone that has a blend of variable rate federal loans (taken out before July 1, 2006, subject to the decrease) and fixed rate federal loans, you will be able to combine all of these loans together when you consolidate.
I do not advise consolidating federal and private student loans together. Doing so would remove all of the federal benefits, and set all of the loans to a variable rate, which is adjusted quarterly by either the LIBOR or PRIME rate indexes. Because federal loan rates are likely to decrease, consolidating federal loans with private loans would cause a significant rate increase.
In addition, the upcoming rate change WILL NOT affect anyone consolidating their private student loan debt. The rate change being discussed is for federal student loans only. Private student loan rates are based on either the LIBOR or PRIME rate indexes and the borrower and/or co-borrowers credit.
I understand how this process can seem a bit overwhelming. So if anyone has additional questions, please feel free to comment. I will make sure that questions and comments are answered on a more regular basis. Also, stay tuned to for the latest rate information once it becomes available.
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I currently have four federal loans with a 4.21% variable interest rate and four federal loans with a 6.8% fixed interest rate (also my perkins with a fixed 5% interest rate). If I compute a weighted average (if I did it correctly) it’s a fixed interest rate of 5.3%. That doesn’t seem that good to me. Should I wait to consolidate until they change the interest rate again, it’s in May or June of ‘09. I don’t want to wait if it is likely the interest rate will increase but from what I’ve heard it seems as though it will go down and I’m better off waiting it out. Also, should I not be consolidating through the government? I just want to know because if I wait to consolidate until May I will be paying very high amounts every month and I don’t want to do it if it is likely the interest rate will go up. What do you think?
November 13th, 2008 | #
I have a priovate loan and need additional money so looking at a federal loan. What should I do? I was looking a consolidating but reading the previous info, I should not. I would rather pay one loan than two. Any advice??
July 31st, 2008 | #
Will you ultimately pay more by consolidating private loans because of possible origination fee and slightly higher interest rate? I am paying on a lot of individual loans, but the rates are fairly low now (4.5) I would like to put it all in to one with a fixed rate. Is that possible?
July 29th, 2008 | #
If I have already consolidated my federal loans (7/2007), can I refinance to take advantage of the new federal rates?
July 22nd, 2008 | #
Thank you much! I will check back in on the 31st then. I hope it drops lower than the .6%. That will be nice!
May 22nd, 2008 | #
Kristen – You should have enough time to confirm that the interest rate is dropping – The new rate is announced on May 31st. For your variable rate student loans, if you consolidate during your grace period, you do get the benefit of locking in those loans at the lower grace period rate (.6% lower than your repayment rate). However, it looks as though the interest rate is going to drop much more than .6%, so waiting should be beneficial. I will make an announcement once the new rate is set – be sure to check back in.
May 22nd, 2008 | #
I have 2 federal stafford loans that were issued before July 2006 (with variable interest rates) and 1 federal stafford loan that was issued after July 2006 (with a fixed interest rate). My grace period ends on June 18th. If I wait to see if the rates change on May 31st, is this too late to consolidate before my grace period ends? Is there a penalty if I don’t consolidate before June 18?
May 19th, 2008 | #
A good majority of the federal lenders that previously offered federal consolidation have exited the market – this is true. Because of legislation last year that shrank the earnings margin that lenders receive for consolidation loans, and the trouble in the credit markets, lenders are actually losing money from federal consolidation loans. Therefore, many have temporarily stopped offering federal consolidation loans until the market can correct itself. So yes – there is no benefit for them, but even worse, the current market is actually causing them to lose money. I recommend waiting until after July 1 to consolidate, given that the rate is most likely going to decrease. I’m not sure if it will drop by as much as 3.5 points – we will know by May 31st. Many in the industry feel that after the rate drops, and the credit markets normalize, more companies will start offering federal consolidation loans again.
May 14th, 2008 | #
I was just told that most companies are not consolidating federal student loans right now cause its not any benefit to them, and that it sucks to consolidate with the government. Do you know companies that are still consolidating federal student loans? Also I heard that the variable rate now set at 6.7% could drop as much as 3.5 points?
May 13th, 2008 | #