09.05.08 | To consolidate or not to consolidate my private loans – that is the question.
I have spoke to many students who are under the belief that consolidation is a means by which to lower your interest rate, however that is not the case. The real benefit to consolidating is extending your loan terms and minimizing your monthly payment. Granted, your rate may decrease as some lenders use the LIBOR index while others base your interest rate off the prime, but that is no guarantee.
So is consolidation right for you? Each person’s financial situation is different so it’s not a black or white answer. What I can tell you is this, if you are struggling with your monthly payment than consolidation will probably serve you well.
We’ve actually seen a spike in consolidation applications over the past month which is reflection on the current state of the economy. Many don’t have jobs or are only working part-time right now and need to lower their monthly payment. The job market is the worst it’s been in years. According to the Labor Department the unemployment rate just jumped to 6.1% the highest in 5 years. Over 600,000 jobs have been lost so far in 2008! I guess we should just be thankful we are in a recession and not a depression.
If you would like to find out what your interest rate and payment terms would be without obligation (click here).
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IMPORTANT:
Many Private Loans are tied to the US Prime Rate (typically the Fed Funding Target Rate + 3%) or the 1-month LIBOR.
For example, my Sallie Mae Signature Student Loan is the US Prime Rate plus 1.25% Margin based on my school, credit rating, etc… Seeing how the Prime Rate is 3% above the Fed rate… my student loan is 4.25% above the fed… currently making it 4.500% (when it does its monthly readjustment on Jan 1).
With a 0.5% auto-debit credit, I’m paying only 4.000% on that loan.
Consolidation would not only cost me big bucks in extending the payment plan, it would also jack up my rate at LEAST 1.25%, if not more.
Consolidation may be an option in the future, but for a Private Loan right now there simply isn’t a lender out there who can afford to consolidate my loan and fix the rate.
December 21st, 2008 | #