Pimp Your Finances

If you took out federal student loans before July 2006, and have not reconsolidated yet, then now is the time for you.

Variable-rate student loans reset every year, and are linked to the 91 day T-bill yield as of July 1^st.  When the interest rates dropped recently, so did the T-bill yield and student loan interest rates. 

What this means is that variable rate Stafford loans that were being charged 7.22% last year are now charging just 4.21%.  Now is a great time to reconsolidate and lock in the low rates.  With inflation a concern, the interest rate will likely go up by the time July 09 comes around. 

I reconsolidated my federal Stafford loans (subsidized and unsubsidized), and my monthly payments dropped from $158.02 to $86.92.  It’s a savings of 45.2%, and it’s locked in for the remainder of my loan. 

To further increase my savings, I’m taking the money I’m saving from the student loan, and am putting it right towards credit card debt.  My budget already accounted for the student loan payment, so I don’t notice a difference in my take home pay.

However, consolidation could reset the term of your loan.  This means you’d have a lower monthly payment, but would make more of them.  If this happens, the savings from the interest rate could be more than offset by the extra payments.  Make sure that you stick to the same terms (number of payments that you currently have left), or else you could end up costing yourself in the long run. 

To get started on consolidating your loans, go to the Federal Student Loan home page.  You’ll have to log into your account, then click on the “Consolidate Your Loans”.

For general information about the pros and cons of consolidating student loans, check out the FinAid.com guide to consolidation. 

For a more detailed explanation of how student loans are tied to T-bills and the interest rate, read Save by Consolidating Student Loans.