Pragmatic Finance

I mentioned previously about the rising interest rates for student loans. Well, I finally got around to consolidating my stafford loans. You have until 6/30/06 to do so. Any new loans taken out after that date will be fixed at close to 7%, so gone are the days of getting really low interest rates by consolidating when federal reserve is keeping them low. Since they were variable rate they were going to increase from around 5% to 7% after this month. Fatwallet has a good thread about some of the new changes recently to the consolidation laws. I am still in school so I will get to keep the deferment and subsidization only now the rates will be fixed.

In my case, it appears the only option was to get a Direct Consolidation Loan as my only loans are Direct Stafford ones. It was pretty simple to do completely online at the Direct Loan Servicing Center website. There was also alot of helpful information at the Direct Consolidation Loan site about the benefits and eligibility of consolidation. The process went very quickly as you are able to sign everything electronically. You have the option to print out the signature sheet and mail it in but online is probably much faster and easier. You also have to choose a repayment plan. I went with the standard plan as it pays off the loan the quickest and therefore you get charged less interest. If I had been able to consolidate these loans when rates were rock bottom I might have chosen one of the longer plans to take advantage of arbitrage. I will probably be taking out more loans over the course of my education so I will have another chance to consolidate in the future.

If you have other student loans than direct ones it might be a good idea to read up on some of the different consolidation deals available. For most people with variable interest rate loans it will be beneficial to consolidate before the end of the month. There is often rate reduction bonuses for automatic debit of payment from your checking account and not missing a payment over a certain period of time, for example, 24 or 36 monthly payments. After I graduate I will scrutinize the available deals to find the lender I find most beneficial.

There was a good article on CNN money about rising interest rates for student loans starting on July 1 and how this affects consolidation. If you have student loans and haven’t looked at consolidation now would be a good time. Last year the rules for them were changed so any stafford loans taken out after July 1 would be at a fixed rate of 6.8% instead of the current variable rate. Right now the variable rate for stafford loans is 4.7% but is expected to raise two percentage points according to the article. Any variable rate stafford loans are going to have much higher rates after June 30. This thread on fatwallet seems to be a pretty good resource detailing the changes to the loans laws. If your a student or just finishing and have loans I advise to read up on it and see what would benefit you most.

So far I only have stafford subsidized loans that are variable rate. I haven’t researched it thoroughly but it seems like I can consolidate them into a Direct Consolidation Loan right now and lock in the 4.7% rate.