The Fine Print
The rates quoted above are the headline numbers. Many of today's graduates will actually pay a higher rate of interest if they can consolidate their loans. That's because this year's graduates are likely to have two years of variable-rate loans, and then two years of fixed-rate loans at 6.8%.
Since loan limits for Stafford loans were expanded over the past four years, today's grads who borrowed the maximum are likely to have the following loan portfolio after the July 1 rate change:
* Freshman year loan: $2,625 at 3.61% (the new variable rate)
* Sophomore year loan: $3,500 at 3.61% (also the new variable rate)
* Junior year loan: $5,500 at a fixed 6.8%
* Senior year loan: $5,500 at a fixed 6.8%
Remember, the consolidation rate is a weighted average of the loans you're consolidating, rounded up to the nearest one-eighth of one percent. So Simple Tuition calculates the consolidated rate for all of these loans would be 5.75%.
The question arises: why consolidate ALL your loans, if those fixed rate loans are going to be rounded up to a slightly higher rate? The only reason is to extend repayment for 15 years from the basic 10-year plan for unconsolidated loans.
Perhaps you'd want to consolidate -- and lock in -- rates on only the first two years of loans, the variable rate loans. In that case, you'd lock in the rate on those loans at 3.625% (the 3.61% consolidation rate, rounded up!). But because of the lower total amount of those loans, you'd have to pay them back in 10 years -- a good idea, anyway.
