Locking Down a Lower Student Loan Interest Rate

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Alex Chadwick talks with Day to Day personal finance contributor Michelle Singletary about whether college borrowers should consolidate student loans and lock in a low interest rate before the government re-calculates rates in July. Michelle writes the syndicated column "The Color of Money" for The Washington Post.

ALEX CHADWICK, host:

Listen up, college graduates. On July 1st, the federal government will recalculate interest rates on student loans. These levels have been very low, but that could change. Michelle Singletary says if you are a college graduate with loans, you need to decide whether to consolidate them and you need to do it soon. Michelle writes the syndicated column The Color of Money for The Washington Post, and she is our personal finance contributor.

Michelle, first of all, what is consolidation?

MICHELLE SINGLETARY reporting:

Basically, all it is is that you take all your student loans that you've accumulated over all the years you've gone to college--hopefully less than seven (laughs)--and you just bundle them into one loan. So one easy payment, all the loans, and it's like refinancing in a sense. You just take all your loans, you put them into one loan, and it makes it easier for the students to make the payments, or the graduates, I should say, to make the payment.

CHADWICK: If it's easier, is it also cheaper? Is this something that you recommend people do because you might save money?

SINGLETARY: Absolutely. And it's particularly important that graduates do it right now, because the rates are scheduled to go up July 1. Now what they do is they have a weighted average of all your student loans, so you don't get the lowest rate, but certainly when you consolidate, you get an average rate which is going to make it less than what all your rates would be individually, and particularly since student interest rates are the lowest they've been in, you know, years.

CHADWICK: Do you know the current rates?

SINGLETARY: Right now, if you consolidate and all your rates are about the same, you have a low rate of 2.875 percent. Now if you've already started to pay back your student loans, say you graduated last year, your rate if you consolidate now would be about 3.375 percent. Now again, if you have loans at various rates, they're going to weight that average, but still, you're going to come out ahead with a lower rate if you consolidate before July 1, and that's a magic date, because on July 1, the rates are expected to go up as much as 2 percentage points.

CHADWICK: Wow. So this is something you really, really should pay attention to...

SINGLETARY: Absolutely.

CHADWICK: ...and take advantage of. You know, I get these things--because we have student loans for our kids now, I get these offers in the mail all the time. I haven't paid much attention to them. I always think, well, how much could I be saving and do I have the time to go through all this? But you're saying open the next one, read it and pay attention.

SINGLETARY: Absolutely. You know, even though the rates are weighted if you have different rates on your various loans, you still can come up with a lower rate. The rates are averaged and they're rounded up to the nearest eighth, but nonetheless, you can still get a low rate. And if all the rates--if you've got, say, one loan or a couple loans with the same rate, you can get that low rate. And I'm telling you, it'll make it easier if you've got this one loan that you have to worry about as opposed to four or five.

CHADWICK: Michelle, can students in college benefit from the low rates now, those who are still in and probably still borrowing money?

SINGLETARY: Absolutely. There was a new ruling by the Department of Education that said that if you're still in school, you can consolidate to take advantage of these low rates that are right now. And listen, as I said, these are the lowest rates we've seen in years, and if they go up, this will be the first time in five years, so you definitely want to take advantage of that. However, there is a caveat. When you graduate from college and you have student loans, you normally get a grace period of, say, six months to pay back those loans. Once you consolidate, that grace period goes away. So if you consolidate while you're in school, you can apply for in-school deferment, which means you don't have to pay while you're in school, but once you graduate, you will have to start making those payments. And so you don't get that breathing room that some students count on.

CHADWICK: Michelle Singletary writes the syndicated column The Color of Money, and she joins us on Tuesdays.

Michelle, thanks again.

SINGLETARY: You're welcome.

CHADWICK: DAY TO DAY is a production of NPR News and slate.com. I'm Alex Chadwick.

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