Why Now is the Time to Consolidate Your Student Loans (and Get an Interest Rate as Low as 3.6%)!

Posted on | August 6, 2008 |

Got student loan debt?

If you do, you’re not alone. With more people attending higher education than ever before and tuition skyrocketing, graduates are finding themselves saddled with 5 figure debt before they’ve even begun their careers.

I was fairly lucky to do as well I did. Having no scholarship and a deteriorating family situation that left me with very little in college savings available, it was federal loans and summer jobs for me. Still, I had about $10,000 in student loans by the time I finished - and I went to a community college the first 2 years and a state school the last 2 years. I can’t imagine people who went to a 4 year school for the full 4 years.

So, if you’re one of the unlucky ones, like me, who don’t have a 4 year degree gifted to them and emerge from the halls of higher learning with higher levels of debt than you’d ever thought possible, now is the time to take action. Maybe.

Since July 1, 2008 you can consolidate your Stafford and PLUS Loans and save up to 3% on the interest rate.
A recent MSN Money Central article by Liz Pulliam Weston provides the details, but the rates look excellent:

“…3.62% to 4.25% on Stafford Loans and 5.13% on PLUS Loans for graduate students and parents.”

I consolidated my student loans about 6 years ago, and at that time the best rate I could get was 4.5%. But it was A LOT better than the 6.25% I had when I graduated.

There are some exceptions (of course) that exclude some loans from being consolidated:

Only federal loans need apply.

Due to the credit crunch and recent changes to student loan funding from Congress, loan consolidation is not as profitable as it once was. This has forced many lenders to move on to greener pastures, as it were. This means chances of your consolidating a student loan that is not a federal loan are pretty slim.

No second spin on the consolidation merry-go-round.

These new rates only apply to variable-rate federal loans. Anyone who has already consolidated their student loans to a fixed rate loan is excluded from this opportunity.

In a state of grace? Wait your turn.

If your loan is in a period of grace where you don’t need to begin repayment, if you’re still in school for instance, you’ll have to let this opportunity pass. This used to be an option, but Congress eliminated it in 2006. Thanks guys.

Still, there are some additional perks as well.

There are no fees for consolidating federal debt.

Interest is Tax Deductible.

You can get a quarter-point discount for agreeing to automatic debits.

Check out the U.S. Department of Education website for more details at: http://loanconsolidation.ed.gov/

AND this is one of those rare cases in finance where procrastination pays off. Here’s an article on BankRate, titled No rush to consolidate student loans this year that details why it was smart to wait until after July 1st.

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2 Responses to “Why Now is the Time to Consolidate Your Student Loans (and Get an Interest Rate as Low as 3.6%)!”

MoneyGrubbingLawyer
August 6th, 2008 @ 12:51 pm

That sounds like an excellent consolidation arrangement for anyone who is eligible.

I graduated with $100k+ in student loans. I didn’t consolidate my Canadian government loans (the interest is tax deductible), but managed to consolidate the rest at 5.25%-and I was happy with that :).

Is student loan interest usually tax deductible in the US?
Joe
August 6th, 2008 @ 1:06 pm

MGL,

Thanks for contributing.

Yes, student loan interest is tax deducible provided you meet IRS guidelines:

“You can claim the deduction if all of the following apply:

1. You paid interest on a qualified student loan in the prior tax year
2. Your filing status is not married filing separately
3. Your modified adjusted gross income is less than $65,000 ($135,000 if filing jointly)
4. You and your spouse, if filing jointly, cannot be claimed as dependents on someone else’s return

A qualified student loan is a loan you took out solely to pay qualified higher education expenses. See the instructions for Form 1040 to determine if your expenses qualify. ”

The best part is that: The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form 1040.

http://www.irs.gov/taxtopics/tc456.html

BTW: 100k sounds extremely painful. I know it’s law school and many people think lawyers make big money, but not every one is a trial lawyer, It sounds like you’re keeping an eye on though. It was a good move to consolidate. Easily one of the best financial decisions I made at the time.

Disclaimer

The information and opinions provided on this site do not constitute professional advice. This blog is intended to provide general information only about the author's own personal financial journey. While all information shared here is believed to be accurate, the owner/operator of this website specifically disclaims all warranties expressed, implied or statutory, regarding the accuracy, timeliness, and/or completeness of the information contained herein. You are advised to discuss your specific requirements with an independent financial adviser. All posts are © 2008-2011, Simple Debt Free Finance.

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Why Now is the Time to Consolidate Your Student Loans (and Get an Interest Rate as Low as 3.6%)!

Only federal loans need apply.

No second spin on the consolidation merry-go-round.

In a state of grace? Wait your turn.

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