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Student Loan Consolidation Rates Are Dropping for Some Borrowers

Francine L. Huff
LoanBiz Columnist

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There's good news and bad news for people considering consolidating student loans. The good news is that rates for consolidating variable-interest rate student loans are dropping to as low as 3.62% as of July 1, 2008. The bad news is that not everyone will be able to qualify for the lower rates.

 

Why Consolidate Student Loans?

People who are having trouble managing their student loan payments and aren't able to get a deferment or forbearance may want to consider consolidating their student loans. They can also end the constant juggling of multiple student loan payments to make sure their bills are always paid on time.

 

Federal Student Loans

Borrowers who haven't already consolidated their Stafford and PLUS federal student loans may be eligible for the lower interest rates. But only loans that were issued before July 1, 2006, are eligible. That's because federal student loans issued after that date have a fixed-interest rate of 6.5%. However, subsidized Stafford Loans issued after July 1, 2008, will have a fixed interest rate of 6%, and more rate cuts are expected in the future.

 

Borrowers have six months from the date of graduation to get the lowest rates on student loan consolidations. But the interest rate they'll actually pay may depend upon whether or not they are consolidating both variable- and fixed-rate loans. It may make sense for some people to only consolidate variable-rate loans to get the best deal so it's important to run the numbers for all possible scenarios.

 

Who Will Consolidate Loans?

Unfortunately, few lenders are offering consolidation loans because of the poor economy. The Direct Consolidation Loan, offered through the Department of Education, is one of the only options available now for consolidating federal student loans. Most student loans that are in default can be consolidated if the borrower makes repayment arrangements with their lender.

 

Before consolidating loans, borrowers should look at how much time is left on their current payments. If they're close to paying off their student loans, then it may not make sense to consolidate them. They also should figure out if they will actually end up paying more in the long term because they are extending their loan repayments.

 

Sources

Federal Direct Consolidation Loans

TheStreet.com, If You Have Student Loans, Read This, by Terry Savage


About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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