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Get Ready to Consolidate Your Student Loans

This article was written by in Debt Reduction. 12 comments.


If you have variable rate student loans, mark July 1, 2008 on your calendar. After that date, you can lock in interest rates 3 percentage points lower than what’s available now. I’m not eligible for lowering the rates on my student loans because I’ve already consolidated and I have no new student loans to add into the mix. But if you haven’t consolidated yet, you may be able to benefit from rates as low as 3.62%.

I have about $11,000 left to pay on my student loans at 4.25%. As savings interest rates have decreased recently, I’ve been increasing the amount I’ve been paying to eliminate this debt. This loan is the only debt I have that requires interest payments, and I’ll be happy to pay it off.

Earlier this month I sent $750 to student loan repayment. That payment is up from $500 the month before, $250 earlier this year, and about $150 earlier than that. In July, I’ll either maintain my $750 payment or increase the amount to $1,000 depending on my June financial results.

Update! There are a lot of questions being asked already, so here are some details.

  • Since many lenders no longer perform student loan consolidation, you may be better off starting your search with the U.S. Department of Education who will.
  • Only variable-rate student loans are eligible. All student loans initiated after July 1, 2006 are fixed-rate loans, so these loans will not qualify for the lower interest rate, but you can still consolidate multiple loans to reduce your number of payments, your minimum due, and extend your total repayment duration.
  • If you’re still in school, you are not eligible for the lowest rate. If you’re in the six-month grace period, you can receive the lowest interest rate on the loans that are over two years old (usually from your freshman and sophomore years). If you’ve waived your grace period you’ll only qualify for a higher rate.
  • If you’ve already consolidated your student loans, you won’t qualify for the lowest rate.

Note: The Department of Education’s loan consolidation application will not indicate the new, low interest rate until July 1. Consolidation applications are on hold until that time.

3.6% student loans: Consolidate now, Liz Pulliam Weston, MSN Money, June 23, 2008.

Updated February 10, 2011 and originally published June 23, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 12 comments… read them below or add one }

avatar Twiggers

Do you have a link for this info? I have federal stafford loans at 6.8% (the rest are consolidated at or below 4.25%). I wonder if these are eligible? Are they lowering the overall stafford percentage rate? This is really exciting and could save me ALOT of money if I can do this!

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avatar Ian

I believe this is only for federal student loans taken out before July 1, 2006, correct?

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avatar Twiggers

I just called and answered my question. if you opened a new loan after 7/1/2006 you are stuck with that hideous 6.8% for ever and ever. I personally think it is wrong that the prime rate is low for everything else, but they stick student loans at a horrendous 6.8%. I am really contemplating writing to my Congressman about this. I mean, I only have about 30K at 6.8%, but still! That 3% interest would be a huge savings every single month.

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avatar Cody

OMG! I had my loans initiated in 2004, I need more info on this. What happens on July 1st of 2008, where should I consolidate???? Give me links, give me info. please.

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avatar Brian

Flexo, although Twiggers got sorted out, I’d still love some additional information on how to accomplish this, how to find out if your loans are applicable, etc. Thanks!

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avatar Luke Landes ♦127,505 (Platinum)

Thanks for all the questions. I’ve updated the post to include some answers as well as links for further information.

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avatar jason

I could be wrong about this, but I believe it may be best to wait until June 2009 to consolidate. No one knows what the economy will do, but there is always a chance rates will drop again next year. During my first year of med school I locked in rates of around 2.8% on one year of loans. At this time next year, if you see the rates are going to increase, go ahead and consolidate. If not, then wait another year and evaluate the rate change again. Your variable-rate loan’s rate will drop on July 1, but then it will stay the same until July 1, 2009.

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avatar john

People should really look into asking their employers to pay off their student loans. Many will do it with a couple year committment.

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avatar Luke Landes ♦127,505 (Platinum)

Jason: You could be right — and you could be wrong. I don’t think they’d be lowering rates as much as they are unless they believed that the Fed would keep rates low for a while. But will they be lower in July 2009? If not, you could be missing out on significant savings if you decide to wait. But if you decide to jump now, you may not have the opportunity to consolidate again next year.

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avatar Twiggers

Yea, I would probably wait until next year IF you are in a grace period right now. If not, and you’re paying upwards of 6%, then consolidate now! Odds are, even if rates are lowered again next year, it might only be by less than one percentage.

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avatar Danielle

I would make sure you ask a lot of questions while doing this. Both my loans and my husbands loans were consolidated by the agencies that issued them and there was no overall reduction of our interest rate based on the current rates, just an averaging of the interest rates on all the component loans. The result?

My $22K is at 2.875% (consolidated in early 2002) and his $13K is at 6.67% (consolidated in June 2008). In both cases they only averaged together the % rate of our individual loans, I just lucked out because interest rates were at low % rates when my loans were issued.

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avatar asdf

GIven this news, I sure am kicking myself for attending school entirely on loans from July 15, 2006 – July 15, 2008. Now I get to pay 6.8% forever because of a simple case of bad timing! I worked full time through college and still accrued $11,000 of debt for an ASSOCIATES DEGREE. I also took out a $5,000 private loan to help me bridge the living expenses gap between my incredibly low income and my needs. I made less than $15,000 in 2007 working full time, so it was hardly a case of spending on frivolous things. Do I regret my decision to go to school? No, definitely not. I just wish I had not paid so much for my associates degree due to a combination of ridiculously high tuition prices and the refusal of the government to give me any financial aid although I can’t possibly imagine being more qualified to receive it. I mean, it’s mostly my fault: I had no idea that there was a school right down the street from mine where I could pay about half of what I did in tuition. The only good news I can see out of this is that my current employer is reimbursing me for my next two years of education, so if everything goes well, I should get a bachelors’ degree with only $16,000 in debt. I’m still somewhat upset about my career prospects though. My degree, while not as utterly useless as an English degree, qualifies me to do one job and one job only. If I don’t like it or I can’t cut the mustard, I’m outta luck. So personally, I will be taking care of my student loans as quickly as possible to combat both the high interest rates and the distinct possibility that I will not be making a lot of money. Still, at the end of the day, my income cleared $20,000 a year in 2008 for the first time in my life. If I’m even able to double that once I get my bachelors I’ll be content.

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