Question:
I have recently graduated on the 6 year super-saver plan from The College of Charleston. This plan allows you to take as much time as you need, provided that you leave with almost 15,000 dollars in student loans. Since then, I have been faithfully repaying my loan, but I keep getting these student debt consolidation emails and letters in the mail. They promise a locked interest rate of 2.25% (I am now paying 3.42%).

These advertisements also threaten that since my loan is "variable," the interest rate could go up at any time, to a limit of 8.5%. It makes sense to consolidate with a fixed interest rate, but I wonder if these companies are trying to take me for a ride, or if there is any truth to what they are saying. If the interest rates go up again, will my present student loan rate go up also? If anyone does believe that it would be smarter to consolidate, do you have any experience with a certain company? There are so many, it confuses me. I would rather not get involved with the wrong company.

Answer:
If the interest rates go up again, will my present student loan rate go up also? If anyone does believe that it would be smarter to consolidate, do you have any experience with a certain company? There are so many, it confuses me. I would rather not get involved with the wrong company.

I have no info on one lender over the other, but yes, by consolidating you do lock in the current consolidation rate instead of staying on a variable rate that could go as high as 8.5% if (when)interest rates go back up in the future. However, the rate normally doesn't go down when you consolidate, but instead gets rounded up to the next 1/8th of a point. But when interest rates go up on the variable rate, you stay at the fixed rate. If you graduated last May, you should still be in the grace period which makes your Stafford variable rate 2.82%, but 6 months after you graduated the rate will become 3.42%. Next July 1 it will change again to reflect the rates for that new year, and it will change every July 1 after that. If you consolidate the rate should be a fixed 3.5%.

If your current rate or the offered consolidation rate varies from the above, it may be that the lender is giving you a special promotional rate or it's due to when you took out each of the loans. In any case, since rates are the lowest they have ever been (which means they will go up in the future) consolidation is a good move. But be careful about the payment length - many consolidators will automatically put you on a 30 year plan which means smaller payments but a lot more interest over those years. If you can afford to do so, try for a shorter plan where you continue to pay about as much per month as you are now. If they don't offer such, you can still make the larger payment which will shorten the life and the cost of the loan - there is no penalty for early repayment. As always, read all the terms before you sign.