On July 1, the interest rate for existing Stafford loans will increase. Many experts believe that it will rise to the highest level in six years. If you are graduating from college or have some loans floating around, you need to consolidate those federal student loans before July 1. The interest rate could go as high as 7%. But if you act right now, you can lock in a rate as low as 4.75% for the full term of the loan. It's simple, the lower the rate, the lower your payment and the more money you save. Under the current law, you can lock in the weighted average of all your loans, up to the nearest 1/8 of 1%. If you have already been paying back your loans, you can consolidate and lock in a rate of 5.375%. Borrowers who are still in the grace period will be able to lock in at 4.75%. Student loans have experienced record-low interest rates for the past several years. The rate for outstanding federally guaranteed student loans is based on rates for short-term Treasury bills for May. Lenders are now looking for rates to exceed 6.9%, a record high for the past six years. If you borrow after July 1, your Stafford loans will have a fixed rate of 6.8%, even if the interest rates go down. Earlier this year, a new law eliminated the variable rate for student loans issued after July 1, 2006. Consolidating several student loans into one gives you one monthly payment. But with new fixed interest rates, the financial benefits of consolidation may be lessened. Don't wait too long to start consolidating, even though you have a month left. Lenders are expecting a large increase in last-minute applications. When choosing a lender to consolidate your student loans, you should consider: -You might not have a choice of who to refinance with. If all of your Stafford loans are held by the same lender, and it offers loan consolidation, they are your only choice. But if you have loans with separate lenders, you can choose whoever you wish. -Some loans shouldn't be consolidated, such as Perkins loans, which are already federally subsidized as a fixed-rate loan for low-income students. Perkins loans are eligible for loan forgiveness is you work in certain fields. -If you consolidate while still in school, you may lose the six-month grace period that usually kicks in after graduation. But locking in a low rate may be worth it. After July 1, the government will no longer allow in-school consolidation. Keep in mind that once you consolidate federally guaranteed student loans, you can't do it again. It's a one-time option. Most college students are facing paying their student loans back for decades. Cutting the interest rate can save thousands of dollars. Student loan debt is often necessary for many consumers, but the high interest rates aren't. Act now. |
