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How to Lock in a Low Interest Rate

If you made the decision to go to college, the odds are that you also made the decision to go into debt. Less than 15% of all college graduates manage to get through school without accumulating any debt (the hard-workers, the trust fund kids, and the huge scholarship winners, generally), and fewer than 5% make it through grad school without any debt. Going into life with a desire for something that requires an advanced degree such as law or the medical industry, but not having the means to pay for it completely yourself often means graduating from school with more than $100,000 in debt – even from most state schools. This huge chunk of student loan debt is usually expected to be repaid within ten years, but there are other loan programs that allow you to extend the repayment time. Whatever the repayment method, by the time your lender tacks on the interest for all of your loans, you are looking at a hefty chunk of change.

Rates Set by Disbursal Date

The rate for your student loans may vary depending on who you got the loan from and what the dates are of the loan. The rates change but are fixed based on when you get them and are fixed throughout school and your repayment period, for example, if you get a Stafford loan for 6.10% that is subsidized, when you graduate, no matter what the rates are for your other loans that you may have received during school, that one loan will be at 6.10% interest. This makes paying back student loans something of a pain since you have to deal with various interest rates and different loans. Most students turn to consolidation in order to make their lives easier.

Student loan consolidation means taking all of your loans and consolidating them into a single loan. The interest rate for your new, single loan will generally be an average of all of the interest rates of your loans as well as weighed by the current market rate (typically set by T-Bills). This means if you are smart, watching the market and prepared for your consolidation at the right time, you can lock in a very low rate for your consolidation that is actually less than the average of all of your loans put together. This type of savings can easily mean thousands of dollars for the average undergrad degree debt or more ten thousand dollars for a significant sum of graduate degree debt.

Timing is Key

Since a portion of your new rate under student loan consolidation is set by current market factors, watching and waiting – especially in the current economy – is key to saving money or losing it. With the current markets down, the interest rates set by the Feds are at some seriously historic lows, but they won’t stay there forever and when the economy shows some signs of real improvement you can bet the rates will climb to reflect that change. Lock in your rate for consolidation when you get the chance. Parents who have PLUS loans for their children can also consolidate, but usually at not nearly the low rates that regular loans can get.