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In regards to the student loan interest, there was an article in the Buffalo News on Aug 30, 2001 that might cost less in the overall picture between lower rates and tax write offs of student loan interest.

The article follows:

Fed-Lowered Interest Rate on Student Loans Brighten Financial Outlook for Many

Source: The Buffalo News
Publication date 8/30/2001

Aug 30– Interest rates on federal student loans took a dive on July 1. Thanks to Alan Greenspan and the Federal Reserve, the time may be right to consolidate federal student loans – and "PLUS" education loans taken out by parents–in order to lock in rates that have plunged to record lows under 6%, experts, say.

Holders of multiple loans or even a single loan can take advantage of consolidation to lock in a permanent rate. Eligible for consolidation are both of the two major types of student loans, Direct Loans from the Education Department and Federal Family Education Loans, which are issued by banks. Both are called Stafford loans, but the repayment options can differ from lender to lender.

On July 1, the variable rate on student loans issued after 1998 fell to 5.99%, less for borrowers still in school or less than six months past their graduation. That's almost 3% points less than the previous rate, adjusted annually by the Education Department. Rates on Parent Loans for Undergraduate Students (PLUS loans) fell as well, to 6.79% from 8.99%.

Variable student loans taken out before July 1, 1998, carry rates somewhat higher, but at less than 7%, still an attractive point to lock in.

It's a good time to think about consolidating to make the current rate permanent. Application can be made over the phone in some cases, although PLUS consolidated loans require a credit check. Applications usually take 3-6 weeks to process, lenders says, either through the Education Department program or Federal Family program lenders like NELnet and Sallie Mae.

But because of a confusing welter of loan rules and cut-off-dates – this is a federal program, after all – grads will have to do some cramming to determine if consolidation will save them money.
You may choose not to consolidate because you already enjoy rate benefits for on-time payments, for example. Sallie Mae doesn't offer on-time payment incentives on consolidated loans..

Rates on federally subsidized student loans are reset each year on July 1, based on the rate of the 91-day Treasury bill plus an added amount defined by statute.

The exceptions are loans issued before 1993, which carry fixed rates. Those loans are also eligible to be rolled into consolidation, but don't expect a big break. For people with a mix of loans at different rates, the rate on the consolidation loan is the weighted average of the loans being consolidated, rounded up to the nearest 1/8 %. Consolidation loans are also capped at 8.25%, but most borrowers will end up paying all the interest they would have anyway on the fixed-rate loan,.

The opportunity to lock in relatively low rates comes just in time for graduates caught in the economic slowdown. Savings on a standard 10 year loan at the new rates will save $136 per $1000 in loans outstanding, compared to the previous 8.19% rate. For the average borrower, with $19000 outstanding, they'd save $2,584 a year.

Another benefit of consolidation is that it gives borrowers an option to shop around for better terms, without having to pay an origination fee. Unlike refinancing your mortgage, consolidating a student loan is free of fees - no matter whether the consolidation is under the Federal Direct program or FFEL.

For example, the Federal Direct program offers borrowers an upfront 0.8 % rate reduction for on-time repayment. Private sector lenders may or may not offer similar discounts.

Under many circumstances, a graduate paying off FFEL loans can consolidate them with a Federal Direct consolidation loan, essentially switching programs.

Consolidating loans may extend the repayments from 10 to 30 years. Caution here, as this could double or even triple the total interest repaid. But this may be the debt relief you may need as your payments will be reduced - since you'll repay it over a longer time.

If you have a Perkins Loan, which can be erased for grads in certain jobs. For example, grads who teach in inner cities can have their Perkins debt canceled over five years. But once the Perkins Loan is rolled over into a consolidation, that option vanishes.

The six month grace period for repayment of student loans presents a special case for recent grads. They can benefit by locking in a lower rate that's effective during the grace period.

It's even possible to consolidate loans while still in school under the Federal Direct program, but there's a big drawback. Instead of being deferred until after graduation, payments on the consolidation loan start to come due in six months. That might cancel one of the Stafford program's big advantiages.

For graduates, there is plenty of time to study the options. Unlike with home loans, there's no rush to lock in now, since the current rate will remain in effect until next July 1. Lenders say one strategy would be to wait until next spring and decide whether to file a consolidation loan application six to eight weeks before July 1, to allow for processing time.

After all, rates might even sink further.

Publication date: Aug 30, 2001

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