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College Debt? Delay Any Refi Until July

February 18th, 2008 · 6 Comments

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Interest rates are coming down again. Maybe it’s time to refinance your outstanding college debt?

BusinessWeek says wait until July. Why?

Interest rates for student loans are going to be reset on July 1. This reset could be as much as 3 percentage points lower (not basis points, percentage points). This could add up to be the largest single decrease in education loan interest rates in history.

Federal student loans come in two types: Stafford and PLUS loans. Loans of both types made before July, 2006, have variable rates ranging from 6.62% for students in school (or those within a six-month grace period upon graduation) to 7.22% for students who have started paying off a loan.

A Stafford borrower who is repaying a loan and waits until the rates reset should shave at least 2.375 percentage points from current loans. A PLUS loan borrower should see a decrease of at least 3.125 percentage points. Although a wave of refinancing took place in July, 2005, when rates hit 2.88%, there are students who didn’t lock in the lower rate. The typical graduate student, who has an estimated $50,000 in debt, could shave almost $75 from monthly payments and save some $9,000 by consolidating this summer.

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Tags: Finance · Young Professionals

  • eimilie

    Do you think I can refinance with Sallie Mae? I thought because I combined all my loans with them years ago (I didn’t know better at the time), to a 6-something percent, I cannot change my rate unless I have a new loan to add to the heap . . .

  • Brian

    I wish I could tell you, but I’m not anything like a loan officer. Click through to read the whole article, and then I guess check with a loan professional.

    As I say, this is not my area of expertise, but I did want to get the word out there: if this July 1 deadline fits your profile, you stand to save a lot of money. Definitely worth asking around a bit.

  • Ramon
  • Brian

    Thanks Ramon!

  • Dee

    Thanks for this post. I just made my first student loan payment last week since my grace period ended. The 7.22% interest rate is a headache but I’m glad to hear it might go down!

  • A Day Late, A Buck Short

    This is definitely good news for me. Like Dee, I’m getting screwed with the 7.22% interest rate, but if I refi, I lose the opportunity to drop to 0% interest after 36 on time payments (Comerica has some deal with my alma mater). Hopefully the rate change will stick around for a while.