Should You Refinance Your Student Loan Debt?

by Jason on July 16, 2009

As of July 1, 2009, variable rate Stafford and PLUS loans have been reduced to the lowest rates in history!

There is no better time than right now for student loan debt consolidation!

Here are some tips to consider if you want to consolidate school debt and are thinking about refinancing your student loans:

Student Loan Debt Consolidation – The Rub!

Here’s the catch – if you have student loan debt that was issued on or after July 1, 1998 and before July 1, 2006 you are in luck!

Rates have been reduced on student loan debts issued during this time period.

You can only consolidate your student loans once, so if you consolidated in the past then you are unable to do so again unless you include a new loan that was not consolidated prior. 

If you are still in school you cannot consolidate your current school loan until you graduate.

You can consolidate loans in the grace, deferment or repayment status.

And lastly, you can’t add private loans into a federal consolidation loan.

How Low Did Rates Go for Consolidation?

According to the SallieMae website, a variable rate Stafford loan during in-school, grace and deferment periods is 1.88 percent, down from 3.61.

Rates on variable rate loans in repayment is 2.48 percent, down from 4.21.  Also, new interest rates on PLUS loans is 3.28 percent, down from 5.01.

The rates on the regular Stafford and PLUS loans are variable, but with this program you can consolidate your school debt into a Direct Consolidation Loan which has a fixed rate for the life of the loan.

Rates are set using a weighted average interest rate of the loans being consolidated, which is then rounded up to the higher one-eighth of one percent but cannot exceed 8.25 percent.

Sound confusing?

Try this online calculator to determine what your weighted average interest rate would be should you consolidate your school debt.

These rates are in effect until June 30, 2010 at which time they will reset again.

Why Consider Student Loan Debt Consolidation?

There are several reason why you should consider student loan debt consolidation:

  • Fixed Rates – The biggest reason why you would consolidate now is to take advantage of a potentially lower fixed rate set for the life of your loan as opposed to worrying about an ever-changing variable rate.  This could potentially save you hundreds or thousands of dollars in interest over the life of the loan.
  • Convenience – Having to make one single payment to one lender will probably reduce your headaches and will be more convenient for you as you try to repay.
  • Lower Payment – If your payments are too much to handle, a student loan debt consolidation with a lower overall monthly payment makes a lot of sense.
  • Flexible Repayment Options – There are four payment plans to choose from and you can change your plan at any time.
  • No Fees – Let me repeat that, No Fees!  The best part is that student loan debt consolidation is free.

Where to Go for Help With Student Loan Debt Consolidation

If interested, you need to go through the Federal Direct Consolidation Loan program.

Check out their website loanconsolidation.ed.gov   and apply here.

Their FAQ section has a ton of information and answers just about any question you can think of.

The Federal Student Aid website also has a helpful checklist to determine whether and how you should consolidate your student loans.

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