Well…sort of.
For the past two years, the interest rate increase on July 1st has had a significant impact on student loan repayment. Having gone up nearly 1.8% (180 basis points) each year, the urgency and need for student loan borrowers to consolidate their student loans was truly evident. But what about this year? With rates set to increase 0.076% (7.6) basis points on July 1, shouldn’t everyone with student loans in repayment be rushing to file their applications prior to the deadline?
For a student loan borrower that has $23,000 in student loan debt, the interest rate increase would translate into roughly $11.43 per year – less then $.96 per month. My point is this: Borrowers should research and understand the benefits and drawbacks of student loan consolidation. They should consolidate their student loans for the right reasons, not simply because they are getting pressure from their lenders or other companies to “beat the rate increase deadline.”
The rate change is only going to affect those borrowers who have variable federal Stafford and PLUS loans taken out prior to July 1, 2006. For all federal student loans disbursed between July 1, 1998 and June 30, 2006, the interest rates will increase slightly on July 1, 2007 as follows:
But keep in mind, consolidation is a great financial repayment tool that combines all existing federal student loans into one new federal loan, providing a significantly lower monthly payment. For any student loan borrower with a tight budget looking for monthly payment relief, consolidation would be a very helpful tool. And without any penalties for making extra or early repayments, borrowers can pay back more when it becomes affordable to.
While the July 1st rate increase may not be significant, borrowers who are currently in their grace period (6 months post graduation before entering repayment) should consider consolidating before it expires. They will save an additional 0.6% (60 basis points) off their interest rate.
So, my recommendation is to do your research, look for a company that demonstrates knowledgeable one-on-one customer service and the willingness to discuss both the benefits and drawbacks of student loan consolidation, and don’t rush to consolidate just because of the rate increase on July 1st.
