Student Loan Consolidation Hot Topics

The final auction of the Treasury Bill has taken place, and the new rates for variable student loans have been determined. Drum roll please…

3.60% - Stafford loans in grace (down from 6.62%)
4.21% - Stafford loans in repayment (down from 7.22%)
5.01% - Parent PLUS loans (down from 8.02%)

What does this mean? If you have federal Stafford or PLUS loans that were disbursed prior to July 1, 2006, your interest rate is going to drop. So if you were thinking about consolidating your student loans, I highly recommend that you wait until after July 1, 2008. You stand to save a lot of money…

Again, these rate decreases will only effect loans that were taken out prior to July 1, 2006. Any Stafford or PLUS loan taken out after July 1, 2006 has a fixed interest rate, and will not be affected.

Effective July 1, 2008…

Variable rate Stafford loan disbursed prior to July 1, 2006, that is IN GRACE (IG) = 3.6%

Variable rate Stafford loan disbursed prior to July 1, 2006, that is IN REPAYMENT (RP) = 4.21%

Variable rate Parent plus loan disbursed prior to July 1, 2006 = 5.01%

* note that any Stafford and PLUS loan that were taken out before July 1, 2006, and has never been consolidated, will have these new rates

* note that with consolidation, these rates are rounded to the nearest 1/8% which would make them:

3.625% Stafford in grace

4.25% Stafford in repayment

5.125% Parent Plus

More interesting findings this week - Student loan borrowers that take advantage of borrower benefit discounts should pay close attention to their repayment schedule to avoid loosing their discounts. Because so many lenders are struggling to stay in business right now, many of them are shortening or removing the late payment grace period. For example, some lenders offer discounts for on-time payments, and previously allowed borrowers to be up to 14 days late before removing the discount. This window is either shrinking or getting completely closed - being only 1 day late in some cases could cause discounts to be removed.

So make sure you stay on top of monthly payments and give yourself a few extra days, or even a week to get a payment delivered. If you have automatic checking account withdrawal setup, be sure to spot check your payments periodically. If you plan on setting up auto payment, note that it usually takes 1-3 billing cycles to get setup, so make your normal payments via check or debit card (over the phone or online) until you can confirm that the auto pay is setup. Also, if you switch banks or checking accounts, make sure and remember to switch your student loan payment(s) as well.

A little extra care and attention could help you save thousands.

If you have Sallie Mae federal student loans, you may want to get in contact with Sallie and make sure that they didn’t report your account delinquent to the credit bureaus. Not late on your payment? Neither were the other 10 million borrowers that Sallie erroneously reported as being delinquent. Some borrowers reported that their credit score dropped 100 points. While Sallie maintains that the mistake only affected borrowers who have graduated payment plans, it may be worth getting in touch with them even if you have a different repayment plan.

Good luck - I imagine their phone lines are going to be pretty busy for the next few weeks.

I can see from the comments on the previous post that there remains a lot of confusion about when to consolidate. I will answer the questions to the best of my knowledge.

Given the current run rate of the Treasury bill, it looks as though variable student loan interest rates will most likely be going down significantly on July 1st. The last auction of the T-bill will be on May 31st, when the new rate is set. Is there a chance that the rate could go up? Sure - there is always a chance. But given the current trend, it seems very very unlikely. But don’t worry - since the rate is set on May 31st, you will still have all of June to start your consolidation in the unlikely event that the rate increases.

Anyone that has federal student loans taken out prior to July 1, 2006 and has not yet consolidated these loans will be effected by this rate change. So I advise anyone who is thinking about consolidating now, to wait until May 31st when the new federal rate is set. The new rate information will be posted on this blog, and also on SudentLoanConsolidator.com.

For everyone that has a blend of variable rate federal loans (taken out before July 1, 2006, subject to the decrease) and fixed rate federal loans, you will be able to combine all of these loans together when you consolidate.

I do not advise consolidating federal and private student loans together. Doing so would remove all of the federal benefits, and set all of the loans to a variable rate, which is adjusted quarterly by either the LIBOR or PRIME rate indexes. Because federal loan rates are likely to decrease, consolidating federal loans with private loans would cause a significant rate increase.

In addition, the upcoming rate change WILL NOT affect anyone consolidating their private student loan debt. The rate change being discussed is for federal student loans only. Private student loan rates are based on either the LIBOR or PRIME rate indexes and the borrower and/or co-borrowers credit.

I understand how this process can seem a bit overwhelming. So if anyone has additional questions, please feel free to comment. I will make sure that questions and comments are answered on a more regular basis. Also, stay tuned to for the latest rate information once it becomes available.