Student Loan interest rates going down?

Question

This is from ed.gov: https://www.ed.gov/offices/OSFAP/DirectLoan/calc.html

"Current interest rates For Stafford loans first disbursed between July 1, 1998, and June 30, 2006, the interest rate for the period July 1, 2007, through June 30, 2008, is 7.22% for loans in repayment and 6.62% during in-school, grace, and deferment periods. Similarly, for PLUS loans disbursed between July 1, 1998, and June 30, 2006, the interest rate is now 8.02%.

The interest rate for new Stafford loans first disbursed on or after July 1, 2006, is a fixed 6.80%. The interest rate for new PLUS loans is a fixed 7.90%. For Direct consolidation loan interest rates, see that rate page for information."

As the Federal Reserve is cutting interest rates left and right, I'm wondering how this will impact student loan rates for school year 2008-2009. I would hope stafford loans would drop below 6.80% and PLUS below 7.90%. Anyone have insight?

solaris1 · Answer

Unless Congress does something about it, there are going to be no changes in the Stafford and PLUS loan programs' interest rates. The rates have been fixed since 2006 and no longer fluctuate based on T-Bill yields.

So, basically the rates will stay fixed at 6.8% and 8.5%, respectively for '08-'09. And I'm not sure how one gets PLUS loans at 7.90%.

bherronp · Answer

That kind of sucks. I consolidated my undergrad stafford loans at 2.8%.

solaris1 · Answer

Yep - my undergrad loans are at 1.75%. Obviously the Dept. of Ed. wised up to this

kryzak · Answer

bherronp and solaris, how did you get rates that low???

solaris1 · Answer

Those simply were the actual rates on Stafford loans in July 2004, kryzak.

In addition, Sallie Mae throws a few freebie rate deductions your way if you make a certain number of monthly payments on time. So I went from a rate of 2.7625% at graduation to 1.75% now. I'm obviously in no hurry to pay off my college loans.

kryzak · Answer

WOW... the rates for stafford was *that* low? I guess the fed rates were 1% back then. I was trying to get a refinance for my mortgage around the 04-05 time frame, but couldn't get it below 5%... sigh.

I don't like that 6.8% thing... I'd rather just use my savings in that case...

I don't like that 6.8% thing... I'd rather just use my savings in that case...

mba2010 · Answer

Mine undergrad loan is locked somewhere around 2% too (never really paid attention since it was so low)...but now I'm going to be borrowing 10x as much...at a much higher percentage rate. SCARY.

riverripper · Answer

If you think 6.8% is bad look at most private loans. If the feds continue to drop rates they might improve but a lot of published ones I have seen have been 8-11% depending on credit scores. Now if you think that is bad think of what some international students will end up getting if they dont have co-signers. Some companies also screw you on fees, I have seen 0-8% for upfront fees. Most private rates are variable too so while they may be low now they could easily end up going back up in a year or two.

Wish I owned a house where I was going to school, a home equity line of credit or equity loan rate are so much more attractive than student loan rates.

Wish I owned a house where I was going to school, a home equity line of credit or equity loan rate are so much more attractive than student loan rates.

kryzak · Answer

yeah, I was tempted to do a Home Equity Loan, but alas, no reason to keep the house if you can't deduct interest/taxes, and if the house isn't really appreciating in value in the near future.

riverripper · Answer

We talked about leasing our house for about 5 minutes...its not worth the hassle of being a landlord. Especially when I am half way across the country. Yes I could hire a management company but I dont think I would trust someone with my house. The wear and tear, and aging of all my renovations will probably negate any value it could regain in the next year or two. It is more important to sell quickly than it is to get every last penny at this point. If I was going ot school in Boston it would probably be different because I could stay at my parents until it sold. No way I can foot a mortgage/taxes/insurance and rent.

With the WSJ prime rate dropping a percent or so in the last month and the potential for another drop in the near future interest rates should go down again if you get a loan tied to prime. That said in 2 years when the feds jack up rates to stem inflation we could end up being screwed if there isnt a way to lock in. I will take a half percent hit if I can lock in so I dont end up like the people who in 2004 got 3 year ARMs on their houses to get 4.5% instead of 4.8% fixed.

kryzak · Answer

at this point I kind of wished I stayed with the 5 or 7 year ARM at 0.5 to 0.75% lower rates. I switched from 7 year ARM to 30 fixed because I thought it would always be good to keep the place, even if I buy a 2nd home or something. But that was way before I even considered going back to school. How things change...

Student Loan interest rates going down?

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