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Stafford Interest Rate Change

Discussion in 'Financial Aid' started by ClockworkDoc, May 16, 2008.

  1. ClockworkDoc

    7+ Year Member

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    Hi All,

    As we approach July, there is a looming questions:
    Do I want to lock in the current Stafford rate or hope for a better one in July?

    Does anyone know what will happen to the Stafford rate? I remember in 2007congress signed a bill that would lower the rate until 2012, but this may have only been effective for undergrad.
     
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  3. akpete

    akpete Drinks, anyone?
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    Stafford loans are fixed at 6.8%. Unless there's something new I haven't heard about.
     
  4. AMDFAO

    AMDFAO AMDFAO
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    Borrowers who have older loans disbursed prior to July 1, 2006 that they never consolidated (which fixed the rate) would still have variable rate loans. The rate is calculated for the period July 1- June 30 by taking the yeild rate of the 91 Day Treasury bill and adding a margin to it. If your loan was deferred in school or in grace it would by 91 T-Bill + 1.7 and in repayment 91 T-Bill + 2.3. The 91 Day (13 week) Treasury Bill is auctioned off to investors weekly but the one that is used to set the Sub/Unsub variable rate is always the last one auctioned in May prior to the start of the new fiscal year which runs July-June. It is possible to know what the new rate will be at the same time you know the old rate since the new rate is calculated based on a May auction with the change to your rate taking effect on July 1. I hope I didn't lose you there...
    Currently the 91 Day T-Bill is auctioning at about 1.9 (down from 4.62 last May thus the in school rate would be 4.62 + 1.7 or 6.32 currently) and if you add the in school margin of 1.7 you can pretty closely guesstimate the new rate for July 1 will be about 3.6. The repayment rate would be about 4.12 (or .6 higher). I would tend to think that if you were going to consolidate to fix your rate you would most likely want to do it after July 1 and before your loans enter repayment and the rate is the higher of the two. If you decide to consolidate early in your grace period (you finish in June and consolidate in July), your loans will go into repayment about 30 days after the consolidation is set (July, August) and you would most likely want to keep your grace since the sub loans would still be subsidized for the entire 6 month grace.
     
  5. ClockworkDoc

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    How about a quick summary instead of financial wiz talk. Grad stafford loan staying were they are or changing?
     
  6. Buckeye(OH)

    Buckeye(OH) 5K+ Member
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    In general, when someone says fixed, it means it doesn't change.

    Hopefully you found that clear enough.
     
  7. SketchLazy

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    It looks like this will only apply to undergrads.
    http://www.studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp

    The Stafford subsidized rate will be lowered over the next four years, though. So those lucky undergrads will be enjoying 3.4% fixed for their loans taken in 2011. Wow.
     
  8. ClockworkDoc

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    Thank you financial genius! Fixed rates can adjusted for new loans.

    That's what I was asking about. I read about it earlier for UG, but I was hoping beyond hope that it was happening for grads too. Oh well, time to sign my promisory note and enter into a whole new kind of debt
     
  9. loved

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    Why the heck do UG's get such low rates?
     
  10. AMDFAO

    AMDFAO AMDFAO
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    You didn't really ask what you wanted to know so I answered what you asked and that was "will my rate go down" but more importantly I sense by your reply that what you really wanted was a quick, off the cuff directive which I won't ever do (it drives my kids nuts at first but then they realize it was worth going through the learning process since a lot of this translates to other financing they will surely be doing: house, practice, car etc and I never thought of it as "wiz talk" but quite the opposite and if "wiz talk" is really a nice way of saying "huh?, I didn't get that" I'll try it again in a different way but if it's really "tell me what to do," you're on your own. Phew.. big run on)
    I will, however, do my best to explain to you how this all works and let you decide how to manage your own portfolio or to make the decision to take the time to figure it out. It's good practice for the real world, trust me and know my posting is not written to be insulting to you (or the other readers) but to help make it a bit clearer.
    The undergrad interest rate is changing annually with each new loan. The loan from your freshman year would be a fixed 6.8, your sophomore a fixed 5.4 etc.. until your senior loan would be the magical 3.4 and Congress can officially tell the world: we cut your rate in half-- hooray for us! What they neglected to mention was that it would be tiered in for undergrad only and funnily enough, the New York Times forgot to highlight that in the headline saying "Dems cut the rate for students" (I'm a political junky as well). Your freshman rate will never be the lower since it is fixed depending on the rate in effect for those loans which Sketch points out (go Sketch!). Consolidation rates are still the weighted average rounded to the nearest 1/8th percent fixed for the life of the loan.
    Everything in lending revolves around the date of disbursement: when did the money change hands. The rates are different for undergrad (tiering down) and grad (fixed 6.8 for all disbursements after July 1, 2006) and are calculated based on the rates in play during a period (always July 1 - June 30). If you were a second year MD your rates for both years are fixed at 6.8 and GradPLUS at 8.5 (or 7.9 with Direct Lending). If you were a 3rd year MD, I'd expect you to have a variable rate loan using the calc in my first post (unless you consolidated it into a fixed 4.75-- weighted 4.72 rounded to the nearest 1/2 % to get 4.75 fixed) and then 2 at fixed 6.8. What you should all be concluding from this is: I may have a different portfolio from others.
    As for do I think the rates will be lowered for Grad? I tackled that in another posting months ago and hopefully it's not too "wizzy" for you. I'd add a smile so you'd know that was meant to be funny but I'm not that skilled with all that :) I'm definitely not a computer wiz but this lending I know extremely well and I'm really funny in person and I give the best darn exit loan counseling session in the country.
     
  11. ClockworkDoc

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    AMDFAO, I am sorry for being a bit rude. I get that way at work. Thanks for the advice.
     

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