Consolidating Student Loans, I have some question???
I have a few questions about Student Loan consolidation.
First of all, might I benefit by waiting until next year to
consolidate? How might I be able to figure out (closer to July
2003) if interest rates might drop again?
Second of all, I'd like to consolidate with Sallie Mae, but
I don't think I qualify. When I looked into consolidation in the
past, it seemed as though I had to have loans from at least
two different guarantors. Currently, I have five (subsidized?)
Stafford loans from the same guarantor. Does anyone know if
I could consolidate a credit card with my Stafford loans?
I am thinking about trying to get a credit card with a 0%
introductory APR, charging a small amount on it, and then
consolidating before my APR 0% promotional rate ends. I'm
very excited that I had thought of this option, because
I would think that the 0% APR would drop my consolidated
interest rate by being factored into the average rate they
calculate. Also, Sallie Mae offers a 1% interest rate
deduction after 48 consecutive on-time payments, and I think
they might also offer a rate reduction for automatic payments.
Does anyone have any experience with this? Is this the
way to go?
Federal student loan interest rates are at their lowest rate in decades - 4.06
percent effective July 1. New rates would effect loans from 7/1/02-6/30/03 and
would be announced several weeks before they take effect.
Rates are calculated according to a statutory formula based on the 91-day
Treasury bill plus 1.7 percent for in school, grace or deferment, and 2.3
percent for loans in repayment. PLUS loans for parents are set at a new rate of
4.86 percent. Rates for Stafford and PLUS loans disbursed prior to July 1998 are
calculated using different statutory formulas and/or percentage add-ons.
The interest rates on most federal student loans are variable and are adjusted
each year. But interest rates on consolidation loans are locked in for the life
of the loan. The interest rate on consolidation loans is the weighted average of
loans being combined rounded up to the nearest one-eighth of a percent.
So what one has to do is keep an eye on the 91 day T-Bill rate, if it goes up
then so will the student loan interest rates. With the economy in this current
state of confusion Greenspan (head of the Federal Reserve, which sets these
rates), may start hiking interest rates so you'll know what is up from those
announcements.
You may only have a few weeks between the time new rates are announced and when
they kick in. If your paperwork is not received in time, you'll be consolidated
at the new rate, whatever it is. Therefore it would be wise to start getting the
necessary papers in now so you'll have all your ducks in a row when the time
comes.
Don't believe this is correct. You can consolidate all your loans from one
guarantor as long as they qualify for such treatment. Telephone your loan
guarantor/servicer and inquire about consolidating, they will look at your
account(s) and tell you then and there if your loans meet the requirements.
Currently, I have five (subsidized?)
No, you can only consolidate certain types of educational loans, it is not a
*credit card* rehabilitation program.
What does getting a credit card have to do with educational loans? You cannot
transfer private personal debt to a student loan account.
Also, Sallie Mae offers a 1% interest rate
Sallie Mae offers that program as a sweetener for people to sign up for
consolidating and as away of giving back some of the savings/cash generated by
borrowers paying on time. If a bank knows that on certain days it can count on
getting X amount in deposits by direct automatic they can make all sorts of
plans for that money as opposed to waiting for checks to arrive and
process/clear.
Disregarding your zero interest scheme, locking in the lowest interest rates now
seems a good idea. Of course you are betting that they will not go lower in the
future, but you'd still be paying higher rates until then.
The other downside is that by consolidating you lose some forbearance and
deferment time on your loans, and more importantly your loans will have their
repayment period extended (which means you are paying more in interest in the
long run). The key to making consolidating student loans work, is to lock in the
low rate but pay off the loan well in advance of the new longer repayment time.
Of course banks would like you to take the longer payment time because they will
make more in interest,but remember student loans have no pre-payment penalty, so
you are much better off paying them off quickly as possible.
In other words think of your loans sort of like a mortgage with no pre-payment
penalties. If you pay off a 30 year loan in 15 years you save that much in
interest. Same with consolidated student loans; if one can keep making the same
payments as before they were consolidated, this way one pays off the loan sooner
and saving by not paying all that interest.