What is a good interest rate for student loan consolidation?
you’re taking about a Federal Consolidation Loan, through which you would combine your existing Federal Loans(through which you would combine your Federal loans like Stafford and/or Perkins and/or PLUS loans into one large, fixed-rate loan).
Interest rates for Federal Consolidation Loans (or Direct Consolidation Loans, which are also federal) are based on the interest rates of your your *existing* loans, which are all set by the federal government. As such, you will receive basically the same interest rate “offers” from any reputable lender with whom you apply. The only time the rates will differ is if the lender is offering additional “interest rate incentives” (a.k.a “borrower benefits”) to sweeten the deal.
For your reference, the current rates are as follows:
* STAFFORD: if you are in school or in your grace period, your Stafford Loan will carry an interest rate of 4.7%; if you are in repayment, your Stafford Loans will be at 5.3%. On July 1st, these rates will increase by another 1.84% (which is why you will want to consolidate before then).
* PERKINS: any Perkins Loans that you have will be at 5%. This is a fixed-rate loan, so don’t expect much flexibility here.
When you consolidate, your lender will take a “weighted average” of all the current interest rates on all the loans that you’re consolidating; they will then round up to the nearest 1/8th percent. So, the current 4.7% Stafford rate, when rounded up to the nearest 1/8th percent, becomes 4.75%. This is the “base” rate you can expect from a lender offering no incentives. Now, almost all lenders will offer you a additional 1/4% interest rate reduction if you elect to have your payment automatically debited from your bank account each month. 4.75% minus .25% = a total interest rate of 4.5%. I’d be willing to bet that that’s exactly what your company is offering you, right? You’ll see a lot of companies offering this rate to their borrowers — don’t accept anything higher than this, definitely. You can certainly shop around for a lower rate, though you probably won’t receive anything too much lower.
***When weighing these different offers, keep in mind that the rate isn’t everything. If you are offered a rate that is *dramatically* lower than the federal rate, be wary. Make sure that you’re being offered a *Federal* Consolidation Loan and not a private one. Check to see how long the company has been in business; in general try to avoid companies that haven’t been around very long.
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