Last year, students were given the opportunity to receive some of the best college loan fixed interest rates ever. The government lowered the interest rate for student loans by about seven percentage points. Students and recent graduates in their six-month grace period began to see their rates drop from 3.4 to as low as 2.8 percent.
But rates won’t stay low forever. They are very low now, so the only place for rates to go is up. If you are on your way out of school, you’ll need to save every cent you can in this tough job market.
If you are a student already in repayment, your variable rate likely fell as low as 3.4 percent last year. Parents who took out Plus loans saw their rates drop to 4.2 percent as well. But the important thing to remember is that these rates are VARIABLE, and they can and will go up.
In fact, the interest rate is dependent upon the 91-day Treasury bill, plus 2.5 percent, with a cap of 8.25 percent. That means you can see you rate go up almost 5 percent with a variable rate over the life of the loan.
Loan averages have only risen, with the typical college loan bill coming to $19,000 at the end of a four-year education. The difference among the rates could save you thousands on the average loan lifetime amount. But time is running out to take advantage of the fixed rates being offered.
Here are some of the benefits that student loan consolidation can offer:
- Students can reduce their monthly payment by as much as 53 percent.
- Pre-application during a grace period can lock in a lower interest rate for the life of the loan.
- Make one loan payment a month, rather than several.
- Repayment of the loan early is without penalty.
- Borrowers can match their repayment plan and term to their financial situation.
- Borrowers can reduce their interest rate by as much as 1 percent by paying on time.
- Applying for your loan with lenders is easy, and there are usually no credit checks or application, origination, or processing fees associated with an application.
While some of these benefits may vary with different lenders, borrowers should feel free to look around. Even better, savings get better with loans that carry larger balances. But it’s important to take advantage of these new rates while they are still available.
The government is planning to stop offering fixed-rate student loans in mid-2004, so future borrowers will have to settle for variable rate loans that could increase their repayment amount dramatically should interest rates rise.
Still aren’t sure if a consolidation loan is right for you? Then take the time to call around and ask. Lenders such as American Collegiate Financial Services, Nelnet or Sallie Mae employ lending counselors to help determine if consolidation is right for you.
If you still need help figuring out if you are eligible for consolidation, or wish to learn more visit the Federal Direct Consolidation Loans Information Center or call 800-557-7392. Remember, these great rates won’t last long, so lock them in while you can.
Jose Vazquez, a marketing major at Western Illinois University, has been awarded 27 scholarships, amassing more than $100,000 in aid to date. He is the author of the book Free Cash For College: The Everyday Students Guide To Financial Aid, available at vazquezmedia.com.
© 2008, Young Money Media, LLC. All rights reserved.