Lower student loan interest rates?

Thanks for linking to me! Yep, I saw my rates change in the quarter following those first few Federal Rate changes.

You're welcome, Stephanie! Stumbled on your blog a couple weeks ago through another bloggers blog roll ... looking forward to more fabulous posts from you! :)

Hello, Barbara.
Thanks so much for the post. It really helped!
I have a question though, I have some Private Loans right now w/ AES, interest rate of 12.49% or so. I decided to consolidate with Sallie Mae since they have my Federal loans. The rate Sallie Mae offered due to credit and the variable WSJ Prime Rate is 10.2% or so.
Now, I know that the interest rates for student loans are expected to lower but I know that Private Loans rates are variable so my questions is:
Should I take the chance and wait for the rate to possibly lower w/ Sallie Mae from the 10.2% they offer to a possible 8.2%, or take it now so I don't pay the remainder 5 months at a 12.49%? Because if I consolidate now at a 10.2%, it will still lower in July to the 8.2%, am I correct?

Hope I didn't confuse you as much as I am right now =)
"I'm in a [confused] state of mind". lol
I don't make sense anymore.

Hey there dreamer! Glad the post helped!
Let me try to ease your confusion ...
Federal loan interest rates can change each July, but private loan interest rates can change when the index rate they're based on (like Prime or LIBOR) changes. So each time the Federal Reserve cuts the Prime rate the rate that is being offered on most private loans could change.
When we're talking about consolidation, there's a big difference between federal and private. When you apply for a federal consolidation loan, you're locking in a fixed interest rate -- this is the reason borrowers might want to wait to consolidate in July after a possible rate change.
However most private consolidation loans have a variable interest rate based on an index rate. So the offered rate on those loans is subject to change any time the index rate goes up or down.
Private loans are usually calculated at the base rate (like Prime rate) plus a pricing margin (for example Prime plus 3% ... right now that'd be 9% since Prime is 6%). If the margins haven't changed since you inquired about private consolidation then the rate you would get if you applied right now may already be lower than the rate you were previously quoted. It depends on when you got that 10.2% quote.
Are your current loans at 12.49% variable? If so look at the margin from the index rate you have on those loans. Compare the index rate on the consolidation loan and your current loan to determine your best option. If the index rate on the consolidation loan is lower, you could see more immediate savings ... not savings delayed until July.
So don't wait to get your private loans consolidated and reap the benefits of a lower interest rate! :) That said, be sure to get all the information you need from Sallie Mae up front to make the most informed decision you can.
Does that help the confusion. Let me know if it's still a little fuzzy.

Your post was very helpful. I was hoping for some clarification with a similarly fuzzy issue regarding all these consolidation offers I get in the mail.
I have Federal undergraduate loans (Stafford) and Federal graduate loans (GradPLUS, Stafford, and Perkins). Based on my understanding of your post, since the undergraduate loans were pre-July 2006 their rate could change if the Federal loan interest rate changes this coming July. However, the graduate school Stafford, GradPLUS and Perkins loans will always stay at the rate of issue (regardless of consolidation or otherwise) because they are post-July 1st 2006.
Therefore, I'm assuming that the only benefits from consolidation (in terms of lowering the overall amount paid to the lender) is to lock in a potentially lower interest rate on my undergraduate loans if the rates drop in July. The harm of course being that the rate could drop again and I would be stuck at the rate when I consolidated.
Do I have this correct?

Hi Joe -- Through consolidation you lock in an interest rate, which may help you pay less interest to your lender over time (depending on whether the variable rate on your loans goes up or down if you don't consolidate). So you are correct in that thinking. Be sure to double check with your lender(s) on your interest rates, though, before you take any action.
Keep in mind too, that the repayment term of a Consolidation loan is based on the total amount being consolidated, so your repayment term may be longer than it was with smaller individual loans. With a longer repayment term, you could end up paying more in interest over the life of the loan. Of course, you can always pre-pay your loans to pay the loan off sooner or request a shorter repayment term. There is no pre-payment penalty for federal student loans.
I do want to clarify one thing for you. The loans you took out in graduate school would stay at their fixed rate if they weren't consolidated. However, through consolidation the student loans you consolidate are paid off and you take out a new loan with an interest rate that is based on the weighted average of all your loans being consolidated, rounded up to the nearest 0.125 of one percent. This is the reason borrowers want to be careful about what student loans they decide to include in their Consolidation loan. Even with fixed rate loans, the interest rate may go up slightly for a Consolidation loan.
For example, say you wanted to consolidate your undergraduate loans to lock in their interest rate and decided to include one of your loans from grad school that has a higher interest rate and larger balance. The interest rate on each of those loans would be weighted based on the balance of the loan and then averaged into the new consolidation loan interest rate. This means you could be paying a bit higher interest rate on the some of the balance that would've been lower if you hadn't included that graduate loan.
Another thing to consider is that Perkins loans have a fixed rate of 5.0%. If you include that loan in a Consolidation loan, you would pay more interest in that portion of the new loan over time than you would if you'd left it out of the consolidation.
So if your goal through consolidation is to reduce the interest you pay, make sure you are careful about what loans you include.

Hello,
This is all very helpful. I am about to graduate from three years of grad school. I used the Stafford loan all three years, dating back to the fall of '05. My question--and I apologize if you've already answered it and I just missed it--is, is there anything I can do to lower my interest rate? My plan is to pay them off as quickly as possible after graduation, so I don't need to lower my monthly payments or anything like that. I just want to know what, if anything, I can do to lower the 6.8%. It seems like if I consolidate them, the rate would actually increase. Is that correct? And, is there anything else I can do?
Hopefully that makes sense. I'm really ignorant about all of this, but your blog is helping to remedy that! Thanks!

Stephen -- Glad you're making the effort to really understand your loans and that the blog is helping! :) I'm sure it's hard to find the information that's pertinent to your situation in my long responses on this post, so I'm glad you commented.
Here's the deal: Stafford loans made after July 1, 2006 are fixed interest rate loans. Stafford loans made before then are variable interest rate loans. So you probably have both. Right now, your variable rate loans are at 6.62% because you are in school, and after you graduate they'll stay at that rate during your 6 month grace period. After that, they'll rise to 7.22%. However, like I said in the post, some industry experts are predicting a rate drop in July for the variable rate loans that are based on the 91-day T-bill. (But rates aren't guaranteed to drop)
Now, a consolidation loan has an interest rate that's a weighted average of all the interest rates of the loans you're consolidating rounded up to the nearest 0.125 of one percent. What your interest rate would be and how much you'll pay in interest over the life of the loan depend on when you consolidate, what the rates are when you do, and what your loan amounts are for each interest rate.
For example say a student has three loans, two at 6.8% and one at 6.62%. Using the consolidation calculator at finaid.org I simulated consolidating these three loans and I assumed a $18,000 loan balance on each. With the current rates, consolidating those three loans would give you a weighted interest rate of 6.75% and $20,406.04 in interest over a 10 year repayment period. If the loans are kept separate the borrower pays $21,040.32 in interest (that was calculated using the variable loan repayment rate of 7.22% for one). Or if the borrower just consolidates the one variable loan during grace at 6.63% (remember the rate is rounded up), total interest paid on all three loans is $20,384.61. So for this borrower the best situation currently is to just consolidate the variable rate loan by itself.
However, if the variable rates drop low enough in July consolidating all three loans might be the better option. I'd suggest going to the calculator and running the numbers with your loan balances. See how low the variable rate would have to get before you could save interest by consolidating all your loans together. You may want to compare your interest rate, monthly payment, and total interest for the unconsolidated loans and the consolidated loans.
Also, know that if you want to lock in a fixed rate on your variable rate loans it is possible to consolidate just that one loan and get a fixed interest rate on the balance. But if you choose this route you will definitely want to wait to see if rates go down in July. Even if rates don't go down, you can consolidate your variable rate loan during your grace period and lock in a lower rate than you would get if you waited to consolidate until the loan entered repayment.
Another thing to keep in mind is whether your lender offered you any interest rate reductions as a borrower benefit. Typical borrower benefits are interest rate reductions for making a certain number of on-time payments and for having payments automatically withdrawn from a bank account. Check to see whether these benefits carry over if you consolidate. Often lenders have different borrower benefits for Stafford loans and Consolidation loans.
Ok, hopefully this clarifies, but if you still have questions let me know.

My Son in Law has a $80,000.00 Private Student Loan that after six months has jumped from 6% to 10%. This loan will cost him and my Daughter and newly born Granddaughter $275,000.00 over 30 years. This is pretty sickening in my opinion.
How can a young couple just staring out ever get ahead with debt like that?
Who would you recommend them using to consolidate and get a lower fixed interest rate? I feel they (The Bank) raised the interest rate on them to make up for all the bad loans they made. NOT VERY NICE OF THEM !!!! They will never afford a home at this rate. All I hear in the Media is talk about the poor home owners that are suffering. WHAT ABOUT THE POOR COLLEGE KIDS?
By the way, His Mother died of Cancer months before he was due to Graduate and because he needed to stay home and help her he did not get his Degree and now can't even afford to go back to finish. HOW SAD IS THAT !!!

The borrower truly is slave to the lender. !!! PLEASE HELP

What is the best way to monitor the federal student loan interest rates to know if it is going to go down come July 1?

Mom -- while I don't know the specifics of your son-in-law's loan, most private student loans interest rates are an index rate (like Prime or Libor) plus a margin. So what could've happened is a change in the base rate. I'd check the details of the loan with the lender.

As I've told some of the other readers, with private loan consolidation there likely wouldn't be a fixed rate option. He could consider taking out a consumer loan (personal loan, home equity loan, etc., depending on assets) to pay off the student loan. However, this might not make financial sense if the student loan has a better rate than he'd get on a consumer loan. Also, he'd lose the potential tax deduction for his student loan interest.

Unfortunately, I don't have any magic solution to offer. Because private student loans aren't guaranteed by the government, the cost of borrowing is higher. This is one of the big reasons students should always look to federal funding first and then borrow a private loan if necessary (not sure if he has a federal loan as well). It's also really important to calculate the ability to pay back the loan based on projected income after graduation. If they can't, students need to reevaluate their choices -- the university choice, whether they work during college, etc.

I'm sorry your son-in-law is in such a tough situation especially with all the other things that happened. But the commitment to repaying the loan is still there. The best way to save interest paid to the lender is by paying a little more toward the loan each month. Even if it's just a small amount, it can have a large impact. This could make the debt a little less constricting on future goals.

Jason -- You can find the T-bill auction history on the Treasury Department's web site. This gives you a good idea of where the rate is headed. I want to make sure the other readers get this info, too, so I'm going to post on this later this week. Keep reading for direct links and details on the possible lower rates.

If I have only fixed rate loans (distributed after July 2006), can I benefit from the predicted lower federal interest rate if I consolidate after July 2008? Or am I stuck with this horrible 7.22% no matter what? Thanks for any help.

Hey KD -- Unfortunately, fixed rate loans won't change. With Federal Stafford Loans disbursed on or after July 1, 2006, the government set a fixed rate rather than a rate based on a Treasury bill. If you're looking to consolidate to ease your payments, you may want to talk with your lender about different repayment options since your rate is already set.

As sad as this might sound, I had to leave the country and move to Europe. I could not afford to make $780 a month payments and the lender would not work with me.

Well, it was a very hard decision but I moved to Europe. Found me a new life,new job, new friends, etc. I live a free stress life. I do not feel like a prisoner any longer.

Please consider this an option. Dont let the Sharks ruin your lives. Move to Canada, Asia, Europe, somewher else as long as you dont have to pay back these bustards.

Sincerely,

me.

Well, we recognize that folks skip out on loans, and while we’re not sure that’s what ‘me’ did, it’s definitely not something we recommend. After all, your credit's on the line. If you're in a similar situation, contact your lender before talking such drastic steps.

Hello
My question is. Why do student loan agents tell you that the interest loan which one originally accepted the loan will always remain the same, when it is not true? I speak of personal experience. You see, my heart's vision has always been to be a teacher. I was only seven years old when I first discovered the yearning to teach. Of course, coming from a very poor minority family background, my parents told me that my kind of dream was not meant for poor people.And so the years went by and if I attended at least 1 year of schooling combined throughout my school years, that was truely a miracle. Then at age 19 I was finally able to atten adult high school and obtain my HIGH SCHOOL diploma. Two years later I attented a small community college and managed to complete minor electives. Later, I got married and continued in the community college for only one more minor course, because my husband was very much against it; so I stopped attending college, but not too long afterward he abandoned me and our three children. So for six long years I cleaned houses and worked in a market deli to make ends meet. There was no alimony, therefore,out of pure basic needs my weekly working hours amounted to 75 hours, and sometimes more. But then, I decided to open a preschool, which I new nothing about. But I worked from 6 am to 12 noon each day, and then I homeschooled my children afterward. Finally, my youngest daughter graduated from home based schooling with a GPA of 3.85. And then In January of 1999 we enrolled in our community colleged together. Why? To pick up with my vision of being a teacher. I was currently working a private school and attended college in the afternoons and sometimes on weekends. But toward the beginning I reliazed that I had to cut down my working hours in order to concentrate on my undergraduate program, after having attained an AA in Social Behaviro Science. And so, I was refered to a student loan agent(s), and that was the beginning of my firsts student loans. Of course, I accepted joyfully and under the loan agents' promises that the current loan rate of the loans I was accepting would always remain the same. Mind you, I did try to get more information about loan interest rate, possibly increasing; But I was never told that other financial institutes could possibly purchase them from one another in the future. And so, I continued into my graduate education, to master in education:Reading etc. But, about the end of my grace period, my loans had been purchased by several financial intitutions, without prior warning to me, and that is when my nightmare begin. Consequently, today I am only able to work as a substitute teacher because the interest rate went too high for me to be able to affor of taking another loan in order to complete a teacher credential program. Finally, I have paid almost $7,000 dollars in repayments within the last twenty six months, and my student loan debt which added to $49,800 two years ago, has only gone down by about $300. How sad, that there are so many people out there that hold truth back in order to benefit their pockets and empty those of others who are honestly trying to make a difference by working hard.

If you have two fixed federal loans (e.g. stafford and PLUS) with differing interest rates, can they be consolidated and does that make sense financially?

Additionally, are any graduate students being offered an interest rate of prime + 0 anymore? Two years ago I attended graduate school and this is the rate I received. It was a one year master's program and I have very good credit. My wife just applied for law school loans and while she also has very good credit she was only offered prime + 3.5%. So, we settled for a PLUS loan instead - no risk of rate increase and a better rate to begin with!!

Thanks!

Hi,
My question is I have a Sallie Mae Private loan of about $6,000 and currently paying 17% interest on it. I tried to consolidate but most would either not accept private loans or have a minimum of $7000 or more to consolidate. Is there any other way to lower my interest so that I can pay this thing off in a reasonable amount of time?

Thanks for your help!

Callie -- I can't speak for your lender, but generally the terms and conditions of a student loan--including the interest rate--should be clearly outlined in the loan documents (such as a disclosure statement and promissory note) that the lender provides. Even if your loan is sold to another entity, the terms and conditions should remain the same.

It sounds to me like you might have variable-rate private student loans, which means that the interest rates are based on an index (like the Prime rate), plus a margin, and can change over time. I would encourage you to "do your homework" (a little teacher humor there) and find out all the details you can about your existing loans. Do you still have all of your loan documents from your original lender? Do you know what your interest rate is, both historically and currently? Have you talked with your current lender about all the repayment options that they offer?

If you're making regular payments and not seeing much of an increase in your principal balance, your payments are most likely covering only the interest. Even if you could throw a few additional dollars in your monthly payment, that would help pay down your balance sooner.

Thanks for sharing your story. Hopefully our readers can learn a few things from your experiences.

Hey MB -- You can consolidate fixed rate loans, however it might not make the best financial sense. Through consolidation you'll be combining the two debts into a new loan and the rate will be a weighted average of the two interest rates. This means if the higher balance has a higher interest rate, you may end up paying more interest on the lower amount over time. Try running the numbers with a consolidation calculator like the one at finaid.org. See how much interest you'd pay with consolidation and how much without. If you're looking to ease payments through consolidating and stretching out your repayment period, you might want to consider extending the repayment terms of your current loans first. Check with your lender to see if you qualify.

To answer your other question, you may find that some lenders have different credit qualifications now than when you attended school so you're seeing different rates than in the past. You did the right thing by choosing a federally guaranteed loan over a private loan with a variable rate.

Hey Erik -- You're smart to look at lower cost options! Wells Fargo offers a private consolidation loan that you may qualify for. The loan just requires a minimum of $5,000. Check it out by visiting wellsfargo.com -- click "Student Loans" and then "Consolidate Your Loans" under the "Repay Your Loan" section. Let us know if you have more questions as you review the info.

Hi Barbara,

I graduated with a BA a year ago and have 3 student loans all with fixed interest rates. Two of them are actually PLUS loans in my parents' name, but I make all the payments. The details are one PLUS consolidated at 5.875% ($18k), one PLUS at 7.65% ($15k), and the one loan in my name that I had consolidated with NHHEAF/GSM&R at 6.75% (11k). The minimum payments total about $550 a month, but I pay $650 a month in an effort to rid myself of this obscene amount of debt (for a mere 2 years at a public school, mind you).

I consider 7.65% on that one PLUS loan pretty high. I got very excited to hear about student loan interest rates as low as 4%, but it's extremely disenchanting to find out that once you take out a loan, you can never really get the interest rate reduced. The best you can do is consolidate, and then get a weighted average of your existing rates which may make your rate go up due to rounding, as you know. With many people I know having student loans with rates as low as 3%, is it unreasonable for me to think my loans are 'expensive'?

Why is it that I can't take out a new student loan at the low rates offered now to cover all the loans I have (including my parents' PLUS)? Come tax time, it's going to be awkward having a conversation with my parents about how much they should reimburse me for the tax credit they got on their tax return as a result of the interest on loans I'm paying. I already talked to the IRS about this, and there's no way for me to claim the tax deduction since legally the loans aren't in my name, even though I make all the payments. Also it'd be nice if I were building my own credit and raising my own FICO score with those payments, instead of padding mom and dad's.

My monthly payments are high, but I'm not looking to extend the repayment plans because my goal is to pay these loans off ASAP as they're the largest roadblock to financial freedom and building wealth. My job pays well and I consider myself pretty disciplined with my finances. I guess I'm just really frustrated by having this much debt and want to make sure I'm not overlooking anything. It's depressing to see $300+ each month of my payments simply going to interest and not putting even a scratch at that $40k+ principal.

Can you think of anything I may be missing? If not, it will at least be helpful to hear from an expert that this is simply the hand I've been dealt and there are no more aces in the deck.

Debtfully yours,
Deep (in the) Red

I am in a situation with my student loans that?s about to become really ugly. I am a Canadian student who came to the states for my education. After finishing school, I am now in debt about $225,000. I make about $110, 000 in the medical profession. I have one loan with Sallie Mae in the amount of $55,000. The other is with MEFA which is in the amount of $170,000. Salle Mae has agreed to extend the term of the loan, which really helps me out. But the other loan company will not under any circumstances do anything to help me. My student loan payments next month will amount to almost $3000! I have attempted calling almost every consolidation company and bank and credit union out there and have been unsuccessful. I have also done hours of internet searches as well. The current state of the economy is causing most of the lenders for consolidation loans to suspend their programs. Moreover, since I?m not a US citizen, I cannot qualify for any government consolidation loans. I am wondering if anyone else out there has any advice or suggestions. I?ve exhausted all options, and am not sure what to do. Please, please, PLEASE help!

I too feel your debt. I see my sons debt for college climbing and I am strapped for cash because I am picking up where the loans won't go. It seems a little strange that the interest for college loans cannot be lowered. Not all of us qualify for free education. Our goal is to do the best we can to help our kids out with college but it really straps us for any extra. And now we have our last young adult starting college
in the fall. Thats 2. They both live at home to save on housing but gee -fuel?????And add to that parents who need help with meds/monthly bills. We did everything right but by doing that we handicapped ourself to any type of help. Something just isn't right.
Good luck and we too feel your pain!
Sandwiched generation!

Let it be known that the student loan market will be the next bubble to burst in this nation. Education, if so essential (and it is), simply shouldn't cost as much as it does!

Psychology/Sociology majors are in for a rude awakening when they realize their sub-$40k a year salaries can't foot the bill for their student loan payments. Especially when they’re trying to pay rent in California, and buy even a used car (with $150+/mo insurance payments and $4/gal gas).

30 year repayments plans are hardly a solution either. Individuals in their early 20s simply cannot bear the burden of this much debt and still expect to save for a home and drive a decent car. And then try and save for college for their own kids! These days it seems like having kids before you're 35 condemns you (and them!) to a life of fiscal mediocrity.

Just wait for the loan-defaults when reality hits. This system is not sustainable. Just like mortgage lenders gave loans to people for homes they couldn't afford, the same is being done to students whose post-graduation incomes will not support loan payments.

Lenders need to be more accountable for their decisions and both lenders and students need to be more conscious in their choice of schools, living arrangements, and post-graduation plans. At least until education costs come down.

At this rate fewer and fewer individuals will attain financial freedom. Without a major overhaul to the education system, the divide between rich and poor, the have and have-nots, will only widen.

The poor get government assistance for school in the form of grants and they also qualify for “need based” scholarships. The rich can obviously pay for school themselves. Who’s watching out for us in the middle, the one’s getting screwed by student loans? …the one’s being punished because our parents couldn’t save for college? As of now, no one.

Deep -- you've got a pretty good grasp of your situation.

With federal student loans, anything made after July 1, 2006 is set at a fixed rate ... this is great when variable rates are on the rise, but at a time like this when some variable rates are quite low it can be frustrating. You could take out some other type of consumer loan (personal loan, home equity, etc., depending on assets) to pay off the loans you currently have, but you might not be able to get a lower rate. Plus, you'd be losing a lot of great benefits of federal student loans like the guarantee and deferment options.

You've got the right idea, though. Each time you pay extra toward your balances each month you're that much closer to paying the loan off earlier than planned. One thing you may want to look at is where you're putting the extra each month. If you're ok with paying the loans in your parents' names first, you could put all the extra each month to the highest interest rate loan. However, since you're not legally responsible for those (although it sounds like you have an agreement with your parents), you might not feel comfortable doing that.

I consolidated my loans and currently have an interest rate slightly above 6% after the 1% dedcution for 3 years of ontime payments and EFT. I have never missed a payment. Is there any way I can get a lower interest rate? Others have in the neighborhood of 3%. Can I refinance?

Hello! I am in quite a tight spot, and I saw this blog. I have a few questions. I am looking for a private student loan that DOES NOT need school certification. I have found a few, but I was wondering if it was possible to find one with a fixed interest rate! I can't seem to find one anywhere! Any help that you can give would be greatly appreciated!
Thank you!!

Hey Cando – Have you talked with the other student loan company about a possible forbearance for your loan? You’d still be responsible for paying the interest that accrues during that period, but it may buy you some time to find a solution.

Wells Fargo does offer a private consolidation loan. However, the current aggregate debt limit (the total education debt a borrower has) is $100,000. Unfortunately with the debt load you’ve taken on, you’ve probably pushed past the total debt limit set by most lenders.

Perhaps you could take out some other type of consumer loan (like a personal loan, etc.) to pay off some of your education debt and bring that total down making it possible to qualify for a private consolidation loan. Other consumer loans may have a higher rate than you’re currently paying on your student loans, but it could be a short-term solution.

Strapped and BubbleBurster – I hear what you’re saying. I think it’s interesting that you both talked about loans when it seems the larger frustration for you is the overall cost of EDUCATION, not the cost of BORROWING. A lot of people accept the high cost of education and instead turn frustrations to the cost of loans, which seems off to me. Now, admittedly, I’m probably biased because I work in the student loan industry, however I’ve dealt with a lot of different types of debt and to me the cost of borrowing through student loans isn’t too expensive if you understand how to use them responsibly.

Borrowers need to know their limits and really think about what they’re getting into. Many students could do that, but they don’t. Instead they choose whatever school they like no matter the cost and take on an extraordinary amount of debt without determining what it is going to take to pay it back.

It’s tough love, but sometimes I just have to put the flip side out there.

Hi David – once you’ve consolidated your Federal loans with a Federal Consolidation Loan, your interest rate is fixed. You cannot reconsolidate to try for a lower rate. The best way to save money in your situation would be to reduce the overall interest you pay on the loan by making extra payments toward the principal balance.

Is it a good thing to pay interest on a subsidized loan while in school (I believe it is 6.8%), or is it better to wait until I get done with school. i noticed the rates go down each year. I'm a little confused.

Hey Joy - the interest on a subsidized loan is paid by the government while you are in school. So if you made payments during school it'd be going toward your principal balance. If you're able to make payments during school, you'd have a lower principal balance when you graduate and the interest becomes your responsibility. So, yes, payments during school are a smart idea because you'll pay less interest in the long run.

About the rates going down … You're right that interest rates on subsidized Stafford loans for undergraduate students are set to decrease gradually each year until 2012 when they will reset to 6.8%. However, this is only for new loans. Your current loan will stay fixed at 6.8%.

When I consolidated my Stafford and Perkins loans with ED, in May 2006, I was told that the consolidated amount increased my total aggregate borrowing power-- is that correct info ?

Mimi

Hey Mimi - when you say aggregate borrowing power, do you mean your aggregate loan limit? We're not as familiar with Direct Loans; however, if you are talking about how much Stafford Loans you're able to borrow for future education I think you're correct. With Direct Loans, PLUS loans for graduate students don't count toward your total limit, so that may also be true for Direct Consolidation Loans. You'll want to double check with Direct Loans, though, to be sure this is what they meant.

Wouldn't it be great if there was no need for student loans? Buzzfund is a social community created to eliminate the need for student loans. It's free to register. It is a hybrid of facebook and eHarmony. Donors provide online scholarships to the students of their choice. I believe this could significantly reduce the need for student loans.

Hi - I consolidated with nelnet in 2006 when interest rates were 5.2% - which is my current interest rate. rates are currently @ 4.2% and are pressumed to dip even lower. Is there a way that I may be able to lower my current rate? I have app.x $30k in loans.

I have a federal consolidated loan that was originally consolidated at 9% (fixed rate) for 30 years. After over 10 years of paying on this loan, I have barely tapped the principle. Is there any way to re-consolidate or have another loan servicing company "buy" my debt at a lower rate. I have never missed a payment in all this time. At the time I consolidated I just didn't realize that the rate would be locked in forever.

@natalie -- If your loan is a federal consolidation loan, no. When you consolidate you pay off your old loans (some of which may have variable interest rates) and take out a a new loan with a fixed interest rate. So you interest rate is locked in for life ... but the next comment for "locked in for life" may be something you're interested in as well (Also, check out the interest rate "locked" has ... puts some perspective on your 5.2% rate which is still really good, even though rates are a bit lower now).

@locked -- The rate you locked in with your consolidation loan is fixed, however if you are able to get another type of loan (personal, home equity, etc. depending on assets) at a better rate you could use it to pay off your consolidation loan (or part of it). However, remember that your new loan may not offer some of the benefits that the consolidation loan offers like forbearance or deferment options, or tax benefits.

It's all such a scam. The schools profit, lenders profit, while middle class people get crushed. The interest rates should be MINIMAL. No one's doing us a favor here. We pay to go to school and even public schools have become expensive and it's all obscene. I'm redoubling my efforts to get out of this asap as I loath giving more money to useless lenders. We should have cheap publicly subsidized education and if we pooled all our resources we could do it. Instead of wasting billions in wars overseas for example. There's no way out of this given the nature of the situation. I thought about moving to Europe myself when I was in the UK and dating a local girl just to escape this. But my family and friends are here so I came back. Honestly, I don't mind paying back even my exorbitant student loans and SOME interest, but to me a fair interest rate would be under 1% tops. Private sector efficiency is such a silly joke when it comes to education, healthcare, and utilities. Overpriced to maximize profit and the 'competition' between lenders is minimal at best. I believe I will soon by making a much better living and my first order of business is to get out of debt completely and destroy my credit cards (I only owe on one of 'em and it's minimal as I don't like this whole living on credit concept). I, like so many others, am wondering why a few people are getting extremely rich off of this, while we're told that 'tax cuts' for the rich help America. Sorry, I don't see it and I never have.

Sorry if I sound bitter, but even forgetting my situation, my sister and bro-in-law are doing all they can to save a fortune so their two kids can remain middle class with an education. If it's this bad now, imagine where we're headed. All a scam just so a few people can get obscenely rich off of the masses. If I have kids, I'll get them to learn German or some other European language and try to get into a school in Europe where education is free or practically free.

I currently have $50,000 in Federal Direct loans, some fixed from 2.8% to 6.5% and some variable right now at 3.9%, if I consolidate it should be around 4.5%. Is it worth consolidating now, or should I wait until July?

Also, I have $40,000 in private loans, however, I believe I cannot consolidate these to get a fixed, low-interest loan, correct?
Can and should I consolidate with my fed loans?

Thank you for any advice! :)

@Leila -- First thing's first: because federal student loans offer certain benefits like forbearance and deferment options as well as a federal guarantee, folks shouldn't combine federal and private student loans when they consolidate.

You can consolidate your federal student loans with a Direct Consolidation Loan. If you do wait to consolidate until July (to see if your variable rates change)you do run the risk that the rates may not be better. 4.5% is a good rate to lock in, but you could take your chances that your variable interest rates will be lower after the T-bill auction on which those loans are based. Just keep in mind that lower rates in July aren't guaranteed.

Now as far as private student loans go, you're right that generally those interest rates are not fixed. However, if your situation has improved since you initially took out those loans, you may be able to qualify for better loan terms with a private consolidation loan.

Hello can you give me help out of a mistake, I have a Federal consolidated at 6.75 that I just did a month ago. I made the mistake of including loans in that were 2 points lower thinking it would help and all I got was a .5 reduction on the sum. Is there any way I can get out of this? I will end up paying dubble in interest. Any help at all? can we change any laws to help, not right that our government is making so much money on these loans. thanks for anything.

@ BigMistake -- If you've already signed your promissory note with your lender, you've agreed to including those loans. If your new loan has been disbursed, those old loans have been paid in full through the new consolidation loan you took out. So, unfortunately, those loans cannot be removed from the consolidation loan. This is one of the reasons students are encouraged to talk with their lender about what loans are best to include or use a consolidation calculator, like the one at finaid.org, to decide which loans should be included. For example, some students don't include Federal Perkins loans in their federal consolidation loans because those loans have a low, fixed rate already.

Thank you Barbara, yes I am locked in, however is there any way to lower the interest? the DLSC does not give me any options, thank you for anything.

@ BigMistake - "locked in" refers to your interest rate as you lock in the terms of the loan (including the fixed interest rate). As I've told some of the other commenters on this post, borrowers who've locked in could take out some type of consumer loan to pay off their consolidation loan, however they may not qualify for a lower rate, plus they're giving up the benefits of the student loan (like the federal guarantee, potential tax benefits, etc.)

Again thankyou Barbara: The Federal loan program must b regulated by a federal law, can you tell me which one? I have to find some way of lowering my 6.75 rate, that is so high when I see other with half of that.

@ BigMistake - the Federal Loan Program is through the Higher Education Act of 1965. This was just reauthorized last year and will continue through 2013.

Barbara I have found that there is a, "2007 College Cost Reduction and Access Act." and this act has wonderful information and also has a forgiveness program that I will be eligible for, I suggest reading of it to anyone, also NASFAA has a great analysis of it. Thanks again.

Hello,
I graduated in 2005 and my interest rate on a consolidated loan is 6.8%. Everyone of my co-workers and close friends who graduated the 4 years before I did pay about a percent on their loans, their payments are much lower and they are paying down their principle which is not the case for me. Is it possible to lower my rate or is this a result of the student loan changes a few years back that Cheney played the tie-breaker on?
Thanks

@ Joe -- I'm wondering, did you wait to consolidate your loans? I ask because with your graduation date in 2005, your Federal loans should've had variable interest rates (The Deficit Reduction Act of 2005, which I'm guessing is the legislation you are thinking of , included a provision for federal student loans made after July 1, 2006 to have a fixed interest rate). Those variable rates were actually at historic lows when you graduated. Students with Federal Stafford Loans at that time were able to lock in rates under 3% with a Federal Consolidation Loan; the interest rate on the new Consolidation loan was the weighted average of the interest rates of the loans being consolidated. This may have been when some of your coworkers consolidated. They could've also received some lender-specific benefits to get their interest rate even lower.

Like I've told other commenters on this post, once you've consolidated there aren't many options for lowering your interest rate. If you paid off the debt with a consumer loan, you'd lose benefits like potential tax deductions and deferment options.

One other commenter mentioned loan forgiveness options available through Direct Loans for students working in public service. You can learn more about it at www.finaid.org/loans/publicservice.phtml. That may be an option to reduce your student loans. Although you may qualify for having the loan balance discharged after a specific period of time, the interest rate won't be lowered if you re-consolidate your loan with a Direct Consolidation Loan, and may even go up (because the interest rate is rounded up to the nearest 1/8 of 1%). Investigate the Important Interest Rate Information on the Direct Loan website (loanconsolidation.ed.gov/borrower/borrower.shtml) to help you decide. If you already consolidated through Direct Loans, the payments you've made since October 1, 2007 will count toward the amount you have to make to qualify for this loan forgiveness.

I have only federal loans ($50,000 with about half at 8.5% and half at 6%) I am lucky to have found a job and am able to afford to pay back more than $1000 minimum every month (but probably closer to $2000) but the interest rate I have (and what they are costing every month) is heartbreaking... isn't there anyone who will lend to me?

I am 34 and have great credit but can't seem to find a lender.

@KBoosh – Are you looking to get additional loans? You mentioned looking for a new lender, for a different type of loan? Would you give us some more details on your situation?

It's great that you are able to make more than the minimum payment which means you are paying less interest on your loans over their lifetime.

Any word on what is going to happen to Federal interest rates July 1, 2009?

@ Benjamin -- we won't know for sure what will happen until after the last 91-day Treasury bill auction in May, however, you can see the trend of the auctions by searching at treasurydirect.org -- just click on "Research Historical Auction Results" and then search the 13-week (91-day) Treasury bills. Also, FinAid is making some predictions: www.finaid.org/loans/scripts/interest.cgi (right after the first chart).

I'm in a bind. I have student loans from my undergraduate schooling with Sallie Mae at 2.625% and I am paying $120 a month. I recently got my graduate degree (required by the state to remain teaching) and those loans are through Nelnet at 6.8% Both graduate and undergraduate loans are Stafford loans. My payments to Nelnet are going to be $180 a month. That leaves me paying $300 a month in school loans and it is going to be next to impossible to pay this amount for ten years with a family. Do I have any options of combining these loans at a lower interest rate to get a manageable monthly payment? I don't make enough as a teacher to keep going to school but the state requires it to remain certified. I'm looking for any help or advice. I just want a more manageable monthly payment and want to avoid default.

I currently have 3 Stafford Loans with interest rates all at 6.8%, my loan company said I will still only be making one payment a month to them and that the money would be evenly distributed among the three loans. Is this going to be my best option? My dad seems to think I should be able to get a different loan at a lower rate to pay off my student loans completely and then just have one loan with a much lower rate.

I believe he gets this idea from the fact that mortgage and auto loans are so low right now, but does any of that make a difference for my student loans?

I just want to know what my best option is. Stick with my current loan people or try and find something better (if there is such a thing)?

Hey J -- It sounds like you're dealing with some variable-rate federal loans and some fixed-rate federal loans. You do have the option to combine these two loans through Federal Consolidation (www.loanconsolidation.ed.gov/) if you want to make one payment each month instead of several. When you consolidate, your old loans are paid off with a new loan which has different terms (generally it has a longer repayment period which can mean lower monthly payments, but also means paying more interest over time). However, you wouldn't be able to secure a lower interest rate. The rate of a federal consolidation loan is the weighted average of the loans you are including rounded up to the nearest 1/8 of a percent. So your rate would actually be a bit higher. Now, there are a couple other options you may want to consider. First off, you may want to consider consolidation for just your variable interest rate loans. Right now, the rates are quite low, so you might want to consolidate to avoid paying more interest on those if the rates would adjust higher (Check out my comment to Benjamin and my post from May 08, 2008 to learn about how to check what might happen to the rates). You may also want to inquire about an extended repayment option. For borrowers who have over $30,000 in federal debt there is an option to lengthen your repayment, which may lower your monthly payment obligation. Remember, though, that this would mean paying more interest over time. After July 1, 2009, there is a new repayment plan option called Income-Based Repayment. You can find out more about this repayment plan at the Federal Student Aid website, http://studentaid.ed.gov/PORTALSWebApp/students/english/loanexit.jsp?tab=attending

You might also want to investigate the Public Service Loan Forgiveness program. You can find out more about this program at the Federal Student Aid website, http://studentaid.ed.gov. Click Applying for Financial Aid on the left, then Repaying Your Loans.

Kristina -- Student loans are unlike some other types of consumer debt in that they can't be refinanced in the traditional sense. There are options to consolidate your loans, however if you're looking to save money that wouldn't be the best option. Right now you have loans at a fixed interest rate. With consolidation those loans would be paid off by a new loan that would have new terms. The interest rate of a Federal Consolidation Loan is the weighted average of the loans you include, rounded up to the nearest 1/8 of a percent. So you'd actually get a bit higher interest rate on a consolidation loan. Now, you could consider getting another type of consumer loan (like a personal loan, home equity loan, etc.) to pay off the student loan debt. However, you may not find a better interest rate than you have now. Also, you'd be losing the benefits of your current loan (like deferment and forbearance options, the ability to choose a different repayment schedule, potential interest rate deductions, etc.)

Are there any present predictions on the rate settings coming July 1, 2009?

Suzanne, the rates that are based on the 91-day T-bill have been set.

For Federal Stafford Loans:
-- 1.88% for Loans disbursed on/after 7-1-98 but prior to 7-1-06 (during in-school, grace and deferment periods); based on margin of 1.7%.
-- 2.48% for Loans disbursed on/after 7-1-98 but prior to 7-1-06 (during repayment period); based on margin of 2.3%.

For Federal PLUS Loans:
-- 3.28% for Loans disbursed on/after 7-1-98 but prior to 7-1-06; based on margin of 3.1%.

FinAid has a interest rate resource page if you want to check other variable interest rates or learn more about these: www.finaid.org/loans/scripts/interest.cgi

I only took out loans through wells fargo, so when I went to consolidate a couple of years ago I had no choice but to consolidate with them. However, I'm paying 300 a month on my loans, and the payments are really affecting me as I am a teacher and just don't make that much money. Do you have any suggestions of federal financing programs or other ways to lower my interest rates?