Fixed Rate Student Loan Consolidation

When you're dealing with variable interest rate student loans you are aware the amount of interest you have to pay can soar to new heights with each passing year. Federal student loan interest rates are capped at 8.25 percent, but like most borrowers you want the interest rates on your loans to be as low as possible. Fortunately, both the Direct and FFEL consolidation loan programs offer borrowers fixed rate student loan consolidation, setting interest rates for the life of the loan.

Save with Fixed Rate Student Loan Consolidation

Once you have consolidated, your interest rate will not change, regardless of how future interest rates might change. The interest rate on your federal student consolidation loan is determined by taking a weighted average of all the loans to be included in the consolidation and rounding up to the nearest one eighth of a percent. Your Direct or FFEL consolidation loan interest rate will never exceed 8.25 percent.

For many borrowers, it makes good financial sense to consolidate during times of low interest rates. However, it is not always best to consolidate Federal Perkins Loans. The fact that Perkins Loans carry a fixed interest rate of 5 percent makes them far less beneficial to consolidate. In fact, consolidating Perkins Loans with the rest of your federal student loans can actually raise the fixed rate of the consolidation loan. In addition, borrowers who choose to consolidate their Perkins Loans forfeit the right to have their loans forgiven based on their career choices. They also give up the 9-month grace period and federal subsidy upon consolidation.