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.
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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