Lock in Low Consolidation Rates

What could be the advantage in refinancing your student debts? Well, one would be the ability to lock in low consolidation rates. As we all know most student debt is subsidized to one degree or another by the Federal Government, and as it is they that pay the piper it is they that call the tune. They therefore have huge power in this market: some 50% of Americans go to college, after all, and just about all of them borrow to pay for it.

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Here is the process to lock in low consolidation rates. It can be done directly with the Department of Education or perhaps more easily with a private company or bank. The various different types of student loans carry different interest rates, some subsidized directly and others at what appear to be higher than market rates. In the consolidation process these are combined (using a weighted averaging process) to provide a single loan at a single interest rate. The use of the weighted averaging method means that there is no particular financial benefit in doing this.

However, the process does change the interest rate from a floating rate to a fixed one. This is what makes it possible to lock in low consolidation rates. If interest rates in the future rise then without consolidation then so would your payments. But as you have locked in the current, lower rates, with a fixed level of interest, your payments will not rise, whatever happens to the general market rates.