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Record Low Student Loan Interest Rate – Consolidate Your Student Loan From 1st July

Effective from 1st July 2009, students who consolidate their variable-rate government student loans will enjoy record low fixed interest rate from the revised government loan scheme.

Financial expert, Mark Kantowitz’s founder of finaid.org and fastweb.com has indicated that commencing from 1st July, the interest rate for consolidation of Stafford loan will be two percent during study period, two and a half percent during payment period of the loan and the interest rate for PLUS loan consolidation will be 3.38 percent.

He added that student loan recipient would benefit greatly on saving money on the repay of loan provided they wait till 1st July 2009 to consolidate their loan.

A typical Stafford loan of $20,000 with a 10 years payback plan at 6.8% t will yield $230 monthly installments with a $8000 as interest till the loan is completely settled. But the new plan of two percent will benefit students by saving up to $46 a month - for the similar loan they only have to pay $184 per month.  This mean that the total interest is only $2000 till the completion of the loan which is almost seventy three percent relieved on interest.

Kantowitz pointed out that consolidation of loans could mean cut down documentation by merging all loans into a single loan. This will allow borrowers to make use of various payback options in addition to the new Income-Based Repayment program. The new Income-Based Repayment program allows borrowers to pay lower monthly payment based on amount of the loans, borrowers’ income and number of dependants.

Kantowitz says that loan recipients who consolidate their loan can make benefit from the public service loan forgiveness which writes off loans on completion of 10 years in public service. The public services as he mentioned include teaching to working in non-profit organizations.

However student loan recipients who have previously consolidated their loans and whose loans approved after July 1, 2006 are not eligible for this new interest rate scheme. The government consolidate loan does not include private loans and studying students are not allowed to consolidate their loans till their graduation.