Interest Rate Trends and Student Loans

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Banana_IHB

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I thought I would ask all of the experts here what your opinion is on interest rates in the context of student loans. Currently, the fed rate is 1.5%. A huge portion of my student loans are not yet consolidated and are still variable. These loans are at either 4% or 4.25% where they started in the 6 to 7% range. If I consolidate these now, I could lock in a rate around 4.5% or so permanently. However, it would be foolish to do this if the rate is just going to go down more (before it inevitably rises again). Does anyone have thoughts on what may happen in the near future? Thanks!
 
I consolidated my student loans about 4 years ago... I got 3.25% Which is the lowest it got to (that I know of)



The interest rate might go lower... but if you do the math waiting for another 1% does it do that much of a difference?
 
don't consolidate. just pay it off as fast as you can. if you consolidate they will reset you back on a 10 year payment plan at a lower payment plan thus delaying your payoff and thus you end up paying more. If you just started paying then maybe you can consolidate but if you are half way though.... just try to pay it off asap. feels alot better too. I managed to pay off 27k in 7 years.
 
[quote author="halfnote19" date=1224118459]I consolidated my student loans about 4 years ago... I got 3.25% Which is the lowest it got to (that I know of)



The interest rate might go lower... but if you do the math waiting for another 1% does it do that much of a difference?</blockquote>


I consolidated in '05 at 2.625, which is now 1.625 after 36 months of on time payments and auto pay. I still can't believe it. And yes, it's on a 20 year payment plan, but it would be crazy to pay off one cent sooner. And the gov't lets me deduct the interest I pay on top of that! I actually didn't need the money, but when they offered me the loans at the low rates, I took them and invested it in the stock market, which served as my down payment fund. Bought the house last nov, so had to bail out of the stock market in oct '07. Pure dumb luck from start to finish.
 
[quote author="stepping_up" date=1224207752][quote author="halfnote19" date=1224118459]I consolidated my student loans about 4 years ago... I got 3.25% Which is the lowest it got to (that I know of)



The interest rate might go lower... but if you do the math waiting for another 1% does it do that much of a difference?</blockquote>


I consolidated in '05 at 2.625, which is now 1.625 after 36 months of on time payments and auto pay. I still can't believe it. And yes, it's on a 20 year payment plan, but it would be crazy to pay off one cent sooner. And the gov't lets me deduct the interest I pay on top of that! I actually didn't need the money, but when they offered me the loans at the low rates, I took them and invested it in the stock market, which served as my down payment fund. Bought the house last nov, so had to bail out of the stock market in oct '07. Pure dumb luck from start to finish.</blockquote>


I used to think like you do about the student loans. I went ahead and paid off my student loan last year in one lump sum, and I feel so much lighter for it. Debt management is a big weight on your shoulders. Perhaps you don't mind this weight, or perhaps you have never been without it to know the difference, but getting rid of it feels great. Could I have made a few more pennies if I had invested the savings instead? Maybe. The real question is whether or not the additional income is worth the stress of holding the debt. For me, paying off the student loan was absolutely the right decision.
 
Stepping_Up, I certainly did not want to hear a student loan was used for the purpose of speculating on the stock market, but I certainly applaud your ingenuity. Don't they require the money to be spent at an educational institution? They just give you the money and expect you to use it the right way and pay it back eventually? Also, how would you have felt if the recent events had taken place a year earlier and impacted the investment of your borrowed money?



Don't get me wrong. You are three steps ahead of me (College Degree + Down Payment + Bought House). You don't even have to answer me (if I've offended you). I'm just wondering how you were able to use the money that way.
 
I'm worried all the cheap student loans are creating a bubble in college education. Pity the young'ns who already fork over upwards of $100k to get a $28k/year job.
 
[quote author="Daedalus" date=1224325292]I'm worried all the cheap student loans are creating a bubble in college education. Pity the young'ns who already fork over upwards of $100k to get a $28k/year job.</blockquote>
That's why I'll send my kids to a state school.
 
[quote author="usctrojanman29" date=1224392944][quote author="Daedalus" date=1224325292]I'm worried all the cheap student loans are creating a bubble in college education. Pity the young'ns who already fork over upwards of $100k to get a $28k/year job.</blockquote>
That's why I'll send my kids to a state school.</blockquote>


Just finishing up putting my oldest through UCLA. It was a lot more expensive than I thought.
 
[quote author="awgee" date=1224397210][quote author="usctrojanman29" date=1224392944][quote author="Daedalus" date=1224325292]I'm worried all the cheap student loans are creating a bubble in college education. Pity the young'ns who already fork over upwards of $100k to get a $28k/year job.</blockquote>
That's why I'll send my kids to a state school.</blockquote>


Just finishing up putting my oldest through UCLA. It was a lot more expensive than I thought.</blockquote>
Really? I went to UCLA undergrad and got out with around $10k in student loans. I remember tuitition was around $3,800 which was less than my tuitition at Mater Dei which was around $4,000.
 
[quote author="usctrojanman29" date=1224399797][quote author="awgee" date=1224397210][quote author="usctrojanman29" date=1224392944][quote author="Daedalus" date=1224325292]I'm worried all the cheap student loans are creating a bubble in college education. Pity the young'ns who already fork over upwards of $100k to get a $28k/year job.</blockquote>
That's why I'll send my kids to a state school.</blockquote>


Just finishing up putting my oldest through UCLA. It was a lot more expensive than I thought.</blockquote>
Really? I went to UCLA undergrad and got out with around $10k in student loans. I remember tuitition was around $3,800 which was less than my tuitition at Mater Dei which was around $4,000.</blockquote>


How much was student housing at Mater Dei? :-)
 
ucla undergrad yearly fees are $8300. then books. then at least parking if you are close enough to commute. if not, add $15k or so for room and board.
 
[quote author="awgee" date=1224397210][quote author="usctrojanman29" date=1224392944][quote author="Daedalus" date=1224325292]I'm worried all the cheap student loans are creating a bubble in college education. Pity the young'ns who already fork over upwards of $100k to get a $28k/year job.</blockquote>
That's why I'll send my kids to a state school.</blockquote>


Just finishing up putting my oldest through UCLA. It was a lot more expensive than I thought.</blockquote>
UCLA and UCB housing are the most expensive.
 
[quote author="IrvineRealtor" date=1224401067][quote author="usctrojanman29" date=1224399797][quote author="awgee" date=1224397210][quote author="usctrojanman29" date=1224392944][quote author="Daedalus" date=1224325292]I'm worried all the cheap student loans are creating a bubble in college education. Pity the young'ns who already fork over upwards of $100k to get a $28k/year job.</blockquote>
That's why I'll send my kids to a state school.</blockquote>


Just finishing up putting my oldest through UCLA. It was a lot more expensive than I thought.</blockquote>
Really? I went to UCLA undergrad and got out with around $10k in student loans. I remember tuitition was around $3,800 which was less than my tuitition at Mater Dei which was around $4,000.</blockquote>


How much was student housing at Mater Dei? :-)</blockquote>
It required 4 years of slavery for me...taking out the trash, washing dishes, and yardward. haha
 
[quote author="freedomCM" date=1224405576]ucla undergrad yearly fees are $8300. then books. then at least parking if you are close enough to commute. if not, add $15k or so for room and board.</blockquote>
They've more than doubled since 1997.
 
Makes me really appreciate community colleges. I remember my first semester at a CC cost me $184 for tuition. The ones here are absolute bargains. You can gain access to some amazing equipment and instructors for $33/semester.
 
My suggestion is that if you can wait it out, just wait until next April/May before you pull the trigger and lock in your current rate. By then you'll have an excellent sense of where interest rates are going and can decide if you want to wait an extra year. Interest rate resets occur every year on July 31, based upon the 91-day T-bill auctioned on May 30th or so. I think you can lock in your current rate so long as you consolidate before the auction date (NOT the rate reset date).



That's what I did. Every year in April, I started studying interest rates to see where they were going. So long as interest rates continued to go down, I didn't touch my loans. In April 2005, interest rates were rising over the previous May (185 basis points higher) so I went ahead and consolidated in April 2005, locking in at 4.17%. It was a good decision because in July 2005, the interest rates did jump 200 basis points over the previous July 2004, and in July 2006, interest rates jumped another 200 basis points over the July 2005 rate. As you know, student loan interest rates have been floating around that 7-8% level until this year.



I had a classmate back in the April of 2002 who told me that her loan payments were killing her and she was going to consolidate her loans. I begged her to wait just two more months until after the interest rates were set to consolidate -- the t-bill rates had already dropped 200 points from the previous May, so there was no reason to think that interest rates would suddenly jump up more than 200 points in the next couple of months. I don't think she understood what the heck i was talking about because she went ahead and did it. Sure enough, two months later the t-bill auction closed 10 points lower than the April 2002 rates. With the on-time payments and auto-pay discounts, I pay 3.0% interest rate. She pays 5.5%.



Another reason to wait is if you are currently enjoying the on-time payments discount. Back then the on-time payments discount was 200 basis points. So my discounted interest rate was actually 2% that I got to enjoy up until the consolidation date.
 
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