Save On Federal Student Loans July 1

If you have a bunch of variable rate Federal student loans, July 1st could be your lucky day. July 1st is when the interest rates on Federal student loans changes, and one financial id expert is predicting they’re going to drop to “historic lows.” What this means is you will have an opportunity to consolidate your variable rate Federal student loans together at the new, lower, rate, and save yourself some cash. How much?

For example, if you had a $20,000 Stafford loan with standard 10-year repayment plan and a 6.8% interest rate, you could expect to pay $230 a month and $7,619 over the life of the loan in interest.

But, if you locked in the 2% interest rate available after July 1, you’d pay $184 a month and only $2,083 in interest over the life of the loan. That’s a 20% lower monthly payment and total interest savings of $5,536 (73%).

For more info on how to consolidate your loans and pitfalls to watch out for, check out the article.

Just remember, these are Federal student loans – Stafford, Plus – and it doesn’t apply to private student loans.

Interest Rates on Federal Education Loans to Drop July 1 [Fastweb] (Photo: joelgoodman)

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  1. HogwartsAlum says:

    What should I do? Just call MOHELA and ask them?

    Help!

  2. missy070203 says:

    Now I’m a little less nervous about having to take out my first student loan ever this year ( a Stafford Loan)
    up until this point I was slaving away to pay with cash…

    • ShachiAssaracus says:

      @missy070203: New federal Stafford loans have fixed interest rates which depend, in part, on when the loan is originated. For example, new undergraduate Subsidized Stafford loans first disbursed on or after July 1, 2009 have a fixed 5.6% interest rate. Undergraduate Unsubsidized Stafford loans have a fixed 6.8% interest rate.

      For graduate students, the interest rate on new Subsidized and Unsubidized Stafford loans are fixed at 6.8%.

    • veronykah says:

      @missy070203: As someone with a huge student loan debt, CONTINUE TO SLAVE AWAY AND PAY CASH.
      That’s my advice. Pay it if you can. I can’t imagine how different my life would be without student loans.

    • oneandone says:

      @missy070203: @veronykah: Yes, but if it comes down to it, student loans are better than credit cards. Keep some (or a lot) of cash available so you don’t have to put neccessary expenses on a credit card. Loans won’t cover 100% of what you need, so watch out for cc debt.

  3. Shappie says:

    Stupid rules and not applying to private loans…

    • Cat_In_A_Hat says:

      @Shappie: Yeah I wish this applied to my private loans. My Citi Assist student loans were just hiked up to 8.835%. Oy vey.

      • veronykah says:

        @Cat_In_A_Hat: WTF? I just checked my CitiAssist loans and my interest was 8.25% when I graduated in ’06 but now its at 3.25%.
        Of course now they aren’t offering consolidation with a fixed interest rate though…

        • Cat_In_A_Hat says:

          @veronykah: I wish this was the case with me, my loan has jumped nearly 2% over the last 2 months. I’m currently in a grad program and I reduced my overall loan to stop receiving disbursements and am going to start paying out of pocket to save money. An 8.835% interest rate just seems unreasonable to be paying for a student loan when I’m putting money in the bank each month earning a mere 0.25%. Hopefully the shares I own of CitiBank stock will start to out perform the amount of interest I owe then on my remaning loan balance.

  4. edwardso says:

    When I tried to consolidate a couple of years ago I was denied because I had less than 30,000 in loans. I am now on the graduated repayment plan. Does anyone have experience with consolidating while on the graduated payment plan. I’d love to reduce the amount of interest I accrue

    • ShachiAssaracus says:

      @edwardso: The federal Direct Consolidation program does not have a minimum debt requirement for consolidation, so you could consolidate your loans through them. Additionally, the Direct Loan program also offer graduate and extended repayment plans on consolidation loans.

      Remember, though, the interest rate drop only affects variable-based Staffords disbursed prior to July 1, 2006. So if all your previous loans have fixed-rates, you won’t benefit from a reduced interest rate if you consolidate them.

  5. pecan 3.14159265 says:

    How does this affect people who have to start taking out student loans? We’re both contemplating masters degrees and would definitely have to take out loans to accomplish our goals.

    • missy070203 says:

      @pecan 3.14159265: I don’t believe this affects us at all … I am in the same boat as you going back for my MBA … I just took out my first student loan ever and from my understanding I’m locked in with subsidised interest to accruce after graduation at 6.25%…. still better than the variable cap rate of 8.25% for the loans that this new “rule” applies to….

      • pecan 3.14159265 says:

        @missy070203: Does the prospective cost of a degree make you cry as well? I guess what I’m trying to ask is, if they’re going to do this for existing loans, what are the chances the Good Light of Less Painful Debt will shine on us who are looking for loans?

        • missy070203 says:

          @pecan 3.14159265: It does bring a tear to my eye…lol I’m a single mom and granted I get some financial aide but its not enough I have a 50 hour work week plus classes (mostly online) and up until now I’ve been able to pay cash for what my aide doesn’t cover but the cost for the MBA is much higher so I’m forced to take out aprox. 2400.00 a semester in stafford loans…. hopefuly they will be as kind to us in 3-4 years when we are outside our grace period and paying 6.25-8.25 % on our balances…otherwise were screwed to pay higher interest on the same education…. my goal is to make payments before my sub. interest accrues… but that leaves my already tight budget pretty tight…

          • pecan 3.14159265 says:

            @missy070203: The cost of education is painful! We’re looking at at least $7,000 a semester for just two classes.

            • blindtheskies says:

              @pecan 3.14159265: This is about what I paid for my MS, about 3500 x 10 classes. I paid for it by putting my undergrad student loans on hold and funneling that money to pay for my MS. I was able to set up a payment plan through a company that my school contracted. This way, at least I didn’t have to come up with the money up front each semester.

    • missy070203 says:

      @pecan 3.14159265: the loans that qualify for this consolidation are going to be at least 3 years old…

    • Corporate_guy says:

      @pecan 3.14159265: I would think your fixed rate will be lower. Most of my loans are variable with one being fixed. The variable are currently at 4.21% and the fixed is 6.8%. As you can see fixed rates suck.

  6. pecan 3.14159265 says:

    And also..the girl in the photo is so pale I thought she was a mime at first.

    Could be the coloring of the photo…but I did a double take cause mimes are freaky.

  7. bobbycreekwater says:

    I wonder if it goes below my current rate of 1.25%?

  8. ShachiAssaracus says:

    This does not apply to federal Perkins loans since they are fixed-rated loans.

  9. TheSpatulaOfLove says:

    And what about those who have already consolidated our loans? Do we get to “re-consolidate?”

    • edwardso says:

      @TheSpatulaOfLove: I think you can reconsolidate only if you have added loans, like grad school

    • missy070203 says:

      @TheSpatulaOfLove: Nope…

    • ShachiAssaracus says:

      @TheSpatulaOfLove: You can consolidate a new loan with a previous consolidation loan, or you can consolidate two or more consolidation loans together. Unfortunately, you cannot reconsolidate just a single consolidation loan.

      It’s important to note that consolidated loans have fixed interest rates. So if you’re consolidating a previously consolidated loan with a new Stafford loan, the new interest rate will be based upon a weighted average of the interest rates on the loans being consolidated.

      More simply put, you run the risk of raising the interest rate on a previously fixed-rate consolidation loan if you consolidate it with a new loan that has a higher fixed-rate.

  10. SadSam says:

    Can’t you only consolidate once? The rules really should be changed on this one, if you can refinance a mortgage multiple times you should be able to “refinance” student loans as well (perhaps pay some fee to do so).

    • missy070203 says:

      @SadSam: Maybe they are hoping you will consolidate your student loans into your mortgage…. considering if you are paying the cap 8.25% on a 10 year repayment term and interest paid on student loans generally doesn’t give many tax advantages…consolidating into a 120 mth home equity loan at a givin rate of 5.74% apr simple interest generally 250.00 closing cost and 395.00 aprox. appraisal fee and then being able to deduct that interest paid from your taxes as interest paid on real estate

    • veronykah says:

      @SadSam: Some of us won’t ever have the money to get a mortgage because of student loans.
      It is ridiculous that the lenders basically got to write all the rules for student lending. Why can’t I refinance a huge loan for school like a mortgage? My student loans are worth MORE than the mortgage my parents took out on their house…

  11. SarcasticDwarf says:

    Oh for ***** sake, I just submitted to have all of mine consolidated in the next week or two. *sigh*

    • ShachiAssaracus says:

      @SarcasticDwarf: You should try contacting your lender to either suspend the consolidation until after July 1. Or, if you haven’t signed the new consolidated loan prom note, you could wait to sign it until after July 1 when the new rates take effect. Of course, the new rates only benefit you if you’re consolidating variable rate loans issued prior to July 1, 2006 which hadn’t been previously consolidated.

  12. Saboth says:

    I locked in my rate and consolidated at 2.75% years ago. One of the few good things I managed to do.

    • chiieddy says:

      @Saboth: Same here. I finished grad school just before that last huge rate hike and got my consolidation in just in time. I decided it was worth consolidating more than waiting out my grace period until August. Smartest thing I ever did.

  13. slim150 says:

    I already consolidated my undergrad degree. I am attending grad school part time (company paid).. could I.. take out a tiny loan for one class then say “Oh I need to re-consolidate”

    my rate now is 4.7%

    • DoubleBaconVeggieBurger says:

      @slim150: I’m no expert, but I think you can. Go for it.

    • ShachiAssaracus says:

      @slim150: It wouldn’t. Your new graduate Stafford loan would have a fixed 6.8% interest rate. Consolidation loans are based upon a weighted average of the interest rates on the underlying loans. As a result, your new consolidation loan would actually end up having a higher interest rate than 4.7%. And your debt load would be greater than it had been before.

  14. Radi0logy says:

    If they actually cared about how much everyone paid they would just automatically give everyone the lowest rate without forcing people to wait for arbitrary “opt-in” dates, force you to find obscure information online about how to do it, and then meet requirements of questionable necessity.

  15. Anonymous says:

    So my wife just took out 20k in federal unsubsidized stafford loans for her masters degree last year. They were at a fixed rate of 6.8%

    Are we able to consolidate the loan under a new lower rate?

    When is the govt going to fix the mess they have caused by forcing students to pay flat 6.8% interest rates?

  16. c_c says:

    So am I reading it correctly; if I have 6.8% Stafford grad school loans taken after 7/1/2006 I can’t consolidate down to 2%?

    In 2004 I consolidated my undergrad loans to 2.75% – 0.25% for auto-withdrawal, that was pretty sweet.

    • c_c says:

      @cc82:
      Actually I just checked and my rate is discounted to 4.3% by using autodraft and e-statements, not bad…

    • Matthew Pettengill says:

      @cc82:

      That sounds similar to my loan through Sallie Mae.

      So, do we automatically get a the reduction to 2.00 %?

      I also have discounts of %.25 for direct debit and an additional 1.00 % for 36 consecutive on-time payments.

      I’ll take another %.75 if they are giving it out.

      Also: just called them to ask – high call volumes.

  17. lpranal says:

    nice, this should at least lessen the shock a little bit when you get out of school, and realize that after you pay your student loans each month you’re making less than your friends with only high school diplomas :-

  18. ogremustcrush says:

    … Why is it that this can’t apply to the subsidized Stafford loans I have taken out the last two years…. I want 2% interest. Or the one’s I’m going to be taking next year…

    Well, at least with the degree I’m working on I’ll probably be able to pay them off within only a couple of years after graduation anyway, so I’ll probably survive.

  19. lilyHaze says:

    When I graduated in ’04, all I had were the Stafford Loans. I never bothered to consolidate them. They went up and then down (started at like 5%, went up 2% and probably back around 5% now). I now have probably $6K total left to pay. I pay like $200/mo ($50 more than the required min).

    Should I consolidate at 2% in July?

    • ShachiAssaracus says:

      @lilyHaze: Since your loans are already in repayment, your consolidation rate would be 2.5% as opposed to the 2.0%, but that’s still better than their current rate which is probably 4.21%.

      Even though your loans aren’t currently consolidated, you’ll still reap the benefit of this new reduced rate, at least from July 1, 2009 through June 30, 2010 (at which time the rates will be refixed). However, if you consolidate your loans during that time period, you can lock in at that lower rate.

  20. panicjanet says:

    I strongly believe that there should be zero interest on student loans. Here in my province of Newfoundland and Labrador, Canada, they’ve just eliminated the interest on the provincial portion of government-issued student loans. Check out the Facebook group “No Interest!” to see how the Canadian Federation of Students in NL mobilized to get the interest rate dropped from 4.75% to 0% as of March 2009. Students should not be punished with an oppressive debt load for trying to educate and better themselves!

  21. veg-o-matic says:

    @missy070203:
    @pecan 3.14159265: Perhaps the sector of higher education in which I work has a skewed perspective, but among my colleagues, it’s a generally accepted idea that MBAs are wildly overrated… kind of like online degrees: marketed like crazy because they’re a fat source of income for colleges and universities, but not necessarily always worth it.

    They’re really only a good idea (and a worthwhile expense) if you absolutely positively need one to get a job or a promotion or if you’ve really committed yourself to going into management after at least a few years on the job.

    Although I don’t ordinarily put a whole lot of faith in what these people say, this could make for an interesting read:
    [www.insidecrm.com]

    For what it’s worth, anyway.

  22. Crabby Cakes says:

    Crap, I only have one Stafford loan. I’m guessing there’s nothing to consolidate there.

    • lilyHaze says:

      @Crabby Cakes: Are you sure? I have a different loan for every year I borrowed (4). I think there were different lenders involved at many points. All 4 of the loans were from my “subsidized Stafford loan” bucket.

    • Corporate_guy says:

      @Crabby Cakes: If it’s variable, I would imagine you can still consolidate or do something to fix in the low rate.

  23. Corporate_guy says:

    Does it not make sense to wait until next june to consolidate? If you get the variable rate of 2.5% for the year no matter what, there is no point in consolidating now. Shouldn’t people wait to see what will be happening one year from now? And decide at that time to consolidate?

    • ShachiAssaracus says:

      @Corporate_guy: The variable interest rate for federal Stafford loans disbursed before July 1, 2006 is based upon the 91-Day T-bill plus 1.7% (for loans in deferment or grace) or 2.3% (for loans in repayment).

      It’s possible that next year, when the rate is reset on July 1, 2010 it could be even lower than this year (especially if the economy’s still circling the drain). Given that borrowers will know the new rate about a month before it goes into effect, I’d agree with you that it’s reasonable to wait to consolidate until you know if the rate’s going to decrease even further next year (although waiting until June leaves you a smaller window in which to complete the consolidation process).

  24. Zclyh3 says:

    I’ve had numerous Stafford loans from Bank of America with a variable rate of 4.87%. Should I be able to consolidate?

  25. AMetamorphosis says:

    I stopped paying my school loan in the summer of 2008 and they are STILL reporting me as paying ON TIME to the credit agencies …

    If private businesses can get my tax dollars ( billions ) than the gub’ment can write off the 4k I still owe after paying 18k …

  26. HogwartsAlum says:

    I just send what I can and they can lump it!

    Someday maybe I’ll be able to pay it all off.

  27. Tom_Servo says:

    I paid for college as I went, it took six or seven years, but no loans.

  28. Tracy Rohlin says:

    Does anyone know how long this low interest will last? Could i consolidate, say, in August or September and still hit the low interest rate?

  29. Whitney Robinson says:

    Will this work for graduate loans after 2006? I went straight through my MA program from my undergrad, so I’ve got loans from 2003-2008.

  30. Anonymous says:

    I have a question:
    I have 3 loans from college and my wife has 2 loans.
    Here’s a breakdown of mine and my wife’s loans:

    3 AES Loans – 1 fixed subsidized, 1 variable private, 1 fixed nonsubsidized

    2 Sallie Mae Loans – 1 fixed subsidized loan, 1 fixed unsubsidized

    How much can i consolidate these loans between us? I’ve heard or rules against consolidating between married couples. I’ve also heard of rules against consolidating certain types of loans. Any suggestions on how to get the best deal for us?

  31. Anonymous says:

    Huh, I don’t know where to begin. I just started my first payment last month and its at 6.8% for about $8000. Is there any way I can lower it?

    I also have a friend who is going back to school. He wants to have a student loan. Will his interest rate still be 6.8%?

    I didn’t do too well in Accounting. These things boggle my mind. Maybe I should ask around.