Submitted by Christina Satkowski on June 11, 2008 - 12:03pm.
There are a lot of numbers floating out there, ready to confuse students. So just to be clear, these are our assumptions:
If a student in the Class of 2008 borrowed the maximum in subsidized Stafford loans each year, they have loans with the following balances and interest rates:
For the academic years 2004-05 and 2005-06, $6,125 in loans at a variable interest rate.
For the academic years 2006-07 and 2007-08, $11,000 in loans at the fixed 6.8 percent rate.
Beginning July 1, 2008, students can consolidate the first two years of loans at the new 3.61 percent interest rate; the last two years remain at the fixed rate. Put together, the consolidated package yields a weighted interest rate of 5.75 percent. Assuming that rates on the variable rate loans average the current 7.2 percent for the next 15 years, the expected savings from consolidating during the grace period will be about $2,542.
NOTE: An earlier post undertstated the savings from loan consolidation. It also incorrectly showed a 20-year repayment period when a maximum 15-year repayment is allowed for a consolidation loan with a balance between $10,000 and $20,000. We have updated the post to reflect the correct numbers. Readers should check the savings for their own loans using a calculator on the Direct Loan website here https://loanconsolidation.ed.gov/loancalc/servlet/common.mvc.Controller?controller_task=startCalculator
Response: There are a lot of numbers
There are a lot of numbers floating out there, ready to confuse students. So just to be clear, these are our assumptions:
If a student in the Class of 2008 borrowed the maximum in subsidized Stafford loans each year, they have loans with the following balances and interest rates:
For the academic years 2004-05 and 2005-06, $6,125 in loans at a variable interest rate.
For the academic years 2006-07 and 2007-08, $11,000 in loans at the fixed 6.8 percent rate.
Beginning July 1, 2008, students can consolidate the first two years of loans at the new 3.61 percent interest rate; the last two years remain at the fixed rate. Put together, the consolidated package yields a weighted interest rate of 5.75 percent. Assuming that rates on the variable rate loans average the current 7.2 percent for the next 15 years, the expected savings from consolidating during the grace period will be about $2,542.
NOTE: An earlier post undertstated the savings from loan consolidation. It also incorrectly showed a 20-year repayment period when a maximum 15-year repayment is allowed for a consolidation loan with a balance between $10,000 and $20,000. We have updated the post to reflect the correct numbers. Readers should check the savings for their own loans using a calculator on the Direct Loan website here https://loanconsolidation.ed.gov/loancalc/servlet/common.mvc.Controller?controller_task=startCalculator