SNEAK PREVIEW: Student Loan Rates to Drop

In 1979, when I was beginning college, the prime interest rate was 11.5 percent and student loans were at 3.4 percent — or 70 percent below prime. Now, the prime rate is 5.25 percent yet student loans are 8.5 percent (and adjustable) — or 57 percent above prime. What is going on?

SAVAGE SAYS: My point exactly! Student loans are no longer a good deal -- and the entire concept of going into debt for a college degree is one that should be debated in the big picture sense -- not just the available loans or rates! When families rebel, or choose lower cost schools, then the market forces will impact colleges to lower rates, cut cots. Of course, and unfortunately, that will come much too late for the kids that are currently grappling with the staggering cost of college NOW! All I can say is: plan wisely and borrow carefully!

Like the previous poster, I am overwhelmed with multiple bills from multiple lenders for multiple loans for 3 college students. We have Staffords (sub and unsub), several Plus loans and one consolidated--and 4 more student-years on the way! Most are fixed rate, and I too would like to simplify my life. But when? Since most of my rates are fixed, and the consolidation is just a weighted average of existing rates, is there any reason to wait? Can I consolidate now, and then consolidate again later, to include new loans PLUS the consolidation loan I already have? With many consolidators (Sallie Mae and All Student Loan, to mention a couple) not offering consolidations currently, does that signify that it would be best to wait, or go with the best offer I can get from consolidators still open for business? Are there significant differences between consolidators if they all use the same calculation to determine the rate? Thanks, Pat

SAVAGE SAYS: First, I apologize to you, as well as to several others, for the delay in posting a response. I try to act immediately on all questions. But we just got new blog software --and my responses didn't make it to the web!

OK, about your question. I think you're a parent, right? And overhwelmed, right? Please read this week's column in the Sun-Times about student loans. You can find it easily at my website -- www.TerrySavage.com as well as a column written about 6 weeks ago on consolidating student loans.

First, it's time to get the responsibilities straight. You're responsible for your PLUS loans, and any private loans you co-signed. Your kids are responsible for their Stafford loans. It's an important distinction -- even though you intend to help.

As I wrote in the earlier column, few lenders are consolidating anymore, since the Federal government decided to give less "support" to those loans -- and because the big banks have other problems. Your best bet in consolidating would be to go the Federal government's direct loan consolidation program. Here's the website:
http://loanconsolidation.ed.gov/borrower/borrower.shtml

The "rules" and rates for loan consolidation are explained in that spring column. The rates on "floating rate" student loans dropped July 1st. Today's college juniors and seniors may still have floating rate loans, as well as some graduates. They can, and should, use their once-in-a-lifetime chance to consolidate at the current low rates. As noted, best deal is through the govt site listed above.

But for the last two years, Stafford loans have carried fixed rates and will do so for the life of the loan. There is no advantage to consolidating those loans -- except to see if you can get a small discount for online or prompt payments --and for the convenience of making just one payment.

Go to www.Simpletuition.com for more information, as well as the govt website. But it's time to have a family conference about what you can afford for the next kids in college. They may have to stay home for a year or two and attend a community college to give you a chance to catch your breath-- and your wallet!

Terry,
I make regular and timely payments to Sallie Mae but receive dozens of calls per month telling me I'm late.
I'd really like to refinance and get them out of my life.
Where can I turn for new financing and I'm thrilled to hear lower rates may be coming.

Thanks

SAVAGE SAYS: If you haven't consolidated your loans yet go to the Department of Educations's Direct Loan program. Here's the linlk: http://loanconsolidation.ed.gov/borrower/borrower.shtml