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Sixty Second Guide to Stafford Loan Consolidation

Every year on July 1st, student loan interest rates are announced and with the recent rate drops there have been significant decreases for students if they opened their loans before July 1st, 2006. Before then, all loans were variable rate and loans that were originated then still carry the variable rates. That variable rate will decrease from 7.22% to 4.21%. If you had a loan after July 1st, 2006, sorry but yours was fixed and won’t change.

Student loan consolidation isn’t really a magical trick, you essentially take all of your student loans, figure out your effective aggregate interest rate, and consolidate it into one loan with one monthly payment. Before July 1st, 2006, Stafford Loans had variable interest rates so it would benefit you to consolidate (lock) your loans when the rates are low. I consolidated my Stafford Loans a few years ago [3] at 3.25%, minus some direct debit and timely payment interest rate discounts. So, if you had all Stafford Loans and consolidated them, your rate would be 4.25% (rates are always rounded up to the next eighth of a percent) if you consolidated within your grace period. If you consolidate after that six month grace period, there’s an automatic 0.6% increase tacked on to make it 4.85%.

Finally, this is really just a PSA for folks who are getting new loans. The rate, starting today, falls from a fixed 6.8% to 6% on new Stafford Loans. Loans originated after July 1st, 2009 will be 5.6%, those after July 1st, 2010 will be 4.5% and those after July 1st, 2011 will be only 3.4%.