If You Have Student Loans, Read This

The world of student loans just became more complicated and expensive for some borrowers, while others are about to get a great deal.

It all depends on whether you're borrowing now or dealing with loans from the past.

Interest rates on variable-rate student loans will drop sharply on July 1st. That will make newer, fixed-rate loans look like a terrible deal, although for most borrowers, they're the "only deal in town."

Two years ago, Congress changed the student-loan program from a variable-rate deal based on Treasury bill rates to a fixed rate program at 6.5%. That rate now looks extremely expensive in comparison with falling interest rates in the marketplace. Still, those who have Federal student loans taken out after July 1, 2006, are stuck with those relatively high fixed-rate loans for the life of the loan.

The divergence becomes even more apparent because interest rates on older, variable-rate loans are about to be cut in half -- to 3.61% from the current 6.62% -- starting July 1. The cut comes because rates on those older loans are tied by formula to the T-bill auction that took place the last week in May.

That creates some interesting opportunities for those who borrowed in earlier years and are now graduating, as well as for graduates who have not yet consolidated their old, variable-rate loans. Not only will they get lower rates, they'll also have the opportunity to lock in those low rates for the duration of their loans.

There is some good news for current borrowers. Rates on subsidized Stafford loans taken out after July 1 will carry a fixed rate of only 6% for the life of the loan. Future cuts in new fixed-rate loans are scheduled for the next three years. But all those rates will be fixed for the life of the loan.

Loan Consolidation Rates Drop -- But No Loans Available!

There's more good news, and bad. If you're a graduating senior looking to consolidate your student loans and lock in current rates, you'll get a great deal if you wait until after July 1st. The consolidation rate on variable loans will drop from the current 7.25% all the way down to 3.625%!

The new lower rate is available only for six months after graduation, so you have to act quickly. (Those who use their once-in-a-lifetime consolidation opportunity after six months have passed since graduation, will pay a slightly higher rate of 4.25%.)

The consolidation rate actually takes into account a "weighted average" of your outstanding loans, so your rate might be slightly different.

But the really bad news is that few, if any, lenders are currently offering consolidation loans -- as a result of the current credit crunch. At SimpleTuition.com there is an online comparison tool for all kinds of student loans. But this year there are no consolidation loans to compare.

Instead there is a link to the Department of Education's Direct Loan program -- the only consolidator left in the business. With an estimated $30 billion of student loans eligible for consolidation, from this year's graduates, and past un-consolidated loans, you can be sure the government will be swamped with applicants.

(Rates for mortgages and other loans can be found at BankingMyWay.com.)

« Previous Page

1 2 3

Next Page »