WSJ: Is It Time to Consolidate Student Loans?

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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3 Responses to “WSJ: Is It Time to Consolidate Student Loans?”

  1. TMR Says:

    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?

  2. Nicole McInerney Says:

    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!

  3. Renata555 Says:

    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.

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