Consolidate Student Loans at Rates down to 3%

Consolidate Student Loans at Rates down to 3%

by Darien Miller

Rate cuts manufactured by the Federal Agency mostly replying to the subprime mortgage credit tightening added up to a 3-percent drop for student loan borrowers when the interest rate on variable-rate Fed. university loans reset on July one, as it does each year. The interest rate on a Fed student loan consolidation is a fixed rate determined by the weighted average of the rates on the university loans being consolidated. With July one having brought a record-setting rate drop on variable-rate Fed. parent and student loans, weighted-average consolidated IRs for these consolidation loans will be down. Borrowers holding variable-rate Stafford student loans that, before July one, were carrying IRs as high as 8.25 % may be ready to cut their repayment rate to a fixed rate as low as 3.62 % if they opt to consolidate their student loans this year. To be in a position to consolidate their Fed. student loans at the lowest current rates, borrowers must meet certain factors : They must have taken out variable-rate Stafford loans before July one, 2006 ; they must not have Fed. student loans that haven't already been consolidated ; and they must consolidate their Stafford loans before the end of the half-year honeymoon period they are granted when they leave faculty. Those borrowers who have already passed their half year introductory period and are now in repayment or in forbearance on their Stafford student loans may be in a position to consolidate at fixed rates as low as 4.25 p.c. Parent borrowers holding unconsolidated variable-rate Plus Loans that were taken out before July one, 2006, will also benefit from the interest-rate reductions that went into effect on July one. In their rush to consolidate their Fed. student loans and lock in a low interest rate, however, parent and student borrowers may find they've a hard time locating a bank with an active student loan consolidation program. After legislation in 2007 cut over $21 bln in aid to personal banks in the Fed student loan program, Fed. consolidation loans became unprofitable to those student loan corporations.

Most non-public banks -- banks that together account for 83 % of the education loan volume made last year, according to Mark Kantrowitz, publisher of FinAid.org -- have since postponed their Fed student loan consolidation programs. "Existing consolidation loans, even for banks, are not profitable" Kantrowitz explains. Kantrowitz advises that student loan borrowers looking to consolidate their Fed parent and student loans at the's low rates apply immediately thru the US dep. of Education's Direct Loan Program.