Taking Advantage of Lower Interest Rates for College Debt Consolidation

Since so many people graduate college with several hundred thousand dollars of college debt, consolidation of these loans is the best option for many.  As the real estate market continues to sag, even in a formerly hot market like Atlanta, the ensuing financial crisis is beginning to drive down interest rates.  While that may not be good news for someone trying to sell a home in such markets, those who want to refinance debt can take advantage of these opportunities to consolidate and save.

Given the very large amounts involved, even just saving a few percentage points when choosing a college debt consolidation option can shave several hundred dollars off your yearly payments.  This is also a good option for those who are finding it difficult to make payments while well-into paying off their college debt.  Consolidation, though it may require some large payments and fees to be paid up front, can make the difference between defaulting and reamining in good standing.

However, regardless of the amount of principal that has been paid down on your college debt, consolidation can generally be divided into fixed and adjustable rate loans.  Fixed loans take a current interest rate and lock it in for the entire term of the loan.  Adjustable rates start out at a slightly lower (closer to prime) rate and float over time according to a percentage over the prime rate each month.  

When entering a market that is showing signs of volatility, choosing between fixed and adjustable rate laons for college debt consolidation can feel a little bit like gambling, perhaps because that's exactly what you're dealing with on some levels.  For instance, many people who are drawn to the fixed rate option will wait until they feel rates are as low as they're going to get.  

By the same token, if the lending market is showing sings of continuing to go down for the next 18 to 24 months, it may be a good idea to take out an adjustable rate college debt consolidation loan and then plan on refinancing again to a fixed rate loan when rates seem like they've bottomed out.  There may be a limit on how often you can revisit such a loan, so be sure and check with your loan officer to make certain your options remain as open as possible.

When refinancing college debt, consolidation of several loan sources, even federally guaranteed debts can be paid off ahead of time with such a loan, though there are sometimes penalties for paying the loan off early.  It is wise to make sure those penalties don't exceed the likely benefits of the college debt consolidation option that you choose.

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