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.