Last Chance for Low Student Loan Rates

Get started early and avoid the last-minute rush!

No, this isn't about Christmas shopping; I'm talking about refinancing your student loans and locking in the current low interest rates before they move much higher on July 1.

I write this story every year -- but this year it's especially urgent. Interest rates on existing student loans change every July 1, based on the rates set at the 91-day Treasury bill auction held at the end of May. It's quite clear that rates on existing variable-rate student loans could jump at least two full percentage points this year.

But there's another reason to consolidate existing loans, even while you're still in school. Under recently passed legislation, current students will no longer be able to consolidate while still in school.

Right now there is a loophole that allows students to consolidate their loans while they are still in school by first asking that the loans be put into repayment status early. Once the loans are in repayment, they can be consolidated, locking in the repayment interest rate. After the loans are consolidated, students ask for an in-school deferment to delay the repayment obligation until after they graduate.

However, this loophole will end, effective July 1, due to the Deficit Reduction Act that passed in February. This means that current students will no longer be eligible to elect early repayment status -- thereby restricting them from consolidating while still in school -- after July 1. So, if you're currently a student with loans, view this short window as your last chance to lock in today's low rates.

Rates Sure to Jump

The current rate on existing Stafford loans is 4.7%. The rate is based on 91-day T-bills plus 1.7 percentage points. With the current 91-day Treasury bills at about 4.6%, the rate on existing loans could jump to 6.3% or higher on July 1.