The Wall Street Journal wrote an excellent article today talking about why it is probably a good idea to hold off on consolidating your federal student loans until July 1, 2008.
Why Wait?
Current Stafford loan repayment rates are 7.22%. Alot of borrowers are eager to consolidate before their grace period is up to lock in the lower in-school interest rate in order to save .6%. This translates to a rate of 6.625%. But if the borrowers wait until July 1 of next year, borrowers would likely be able to lock in a consolidated rate of 6.5% or lower.
What Determines Federal Consolidation Rates?
The Education Department resets the interest rate on its Stafford and PLUS programs annually on July 1 using a formula based on the 91 day Treasury Bill. Since rates on the 91-day T-bill tend to closely reflect the fed funds rate, the Fed’s recent moves to trim short termrates a total of 3/4 of a point should result in a lower interest rate. Of course, you also risk rates rising. But given the housing and credit crisis, that doesn’t look likely. Though, you never know!
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November 5, 2008 at 7:23 pm
I anticipate graduating June 6, 2009. I have 6 month grace before repayment on subsidized and unsubsidized Stafford loans begin. Payment begins Dec. 6, 2009.
Can I and should I try to consolidate before I graduate or would I be better off to wait until after the May 2009 T-bill auction?
Do you project the May 2009 T-bill to decrease?
November 10, 2008 at 2:52 am
When did these loans originate? Any of them prior to July 1, 2006? That is the only loans where T Bill rates will matter…If all of them were after this date they are fixed rate loans and thus you would benefit by consolidating BEFORE repayment begins!
May 14, 2009 at 12:27 am
Hi, I was looking for some info on student loan consolidation as I’m writing a blog about it and trying to collect as much details as I can.
Thanks for you post on student loans, really people must learn everything before applying for a student loan…
It can be very confusing sometimes but it’s a must thing to do.
Thanks