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THE DEBTS:
Direct Loans: $8300 at 8% (variable), disbursed 1998.
Sallie Mae: approximately $9800, interest ranging from 8.00 - 8.89% (variable), taken out 1991-1994.

THE FUTURE:
I've already gotten a letter from Direct Loans saying that my interest rate will go down to 6.79%. (If anyone knows why it's this and not 5.99%, please let me know). Haven't heard from Sallie Mae

THE TWIST:
I've made my past 36 Sallie Mae payments on time. Under their "Great Rewards" program, if I go one more year (for a total of 48 months) then I'll get a hefty 2% interest reduction. If I consolidate, I'll lose eligibility for this program.



The Direct Loan was probably disbursed before July 1, 1998. Prior to 7/1, the rate was 91-day T-bill plus 250? 310? (Something like 250 basis points in school and 310 out I think. 6.79% is the new t-bill + 310 rate) Call and double check if that's it. I believed there was also some screwy rate between July 1 and October 1 that year, but now I think hberes was right and the rate went to T-bill plus 230 on July 1, 1998. (That Sallie Mae and their ilk pressured Congress into not creating even lower rates that year---long story from an earlier post.)

I remember "Great Rewards". I don't think Sallie still offers that one on new loans--maybe they do. It was everyone's first indication that Sallie didn't need so big a markup to make money on student loans.



MY QUESTIONS:

Can I expect my Sallie Mae loans to go down, or will those remain at their current 8-ish range?

If Sallie Mae rates do go down, that means that in 12 more months I'd be eligible for a staggering 4% rate, right? In which case darn tootin' I shouldn't consolidate.

Am I right in thinking that the advantage to consolidation is that the rates will be locked in?



If you have variable Sallie Mae loans (these are variable Staffords, right?), they should also drop in rate next week. These would work just like normal variable rate loans. Maybe if you have 8.5% now, they would go to 6.25% or something like that. You're right that if next year the rates were still low, you would get another 200 basis points knocked off--for a 4.25% rate for that year. But this is hazy to me: find out if there isn't some kind of floor on how low the rate could go . . .. If the rate can't go any lower than, say, 6%, where's the deal?

Also, as you state, the idea with the Direct Loan consolidators is that the rate will be low, and FIXED. The "Great Rewards" Loan sounds like it's lower next year (July 1 - June 30), but variable. So if rates shoot back up, you are some points above 6% (6.7%, 6.5%?), even if they are cutting you the 2%.

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