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July 1, 2008 and Student Loans

Question: I'd like to first start off by saying I love show and could listen to it for 3 hours a day if it were on and I had the time. Honestly, how can someone like Chris know so much about such a wide range of financial topics? I've heard a lot recently about the July 1st deadline to consolidate students loans to a very, very low rate and was wondering: 1) What personal information do I need to gather? and 2) What website should I go to.

I usually am at work when the show is on, so I only get to listen to bits and pieces, but an e-mail or any response would be greatly appreciated. Thank you! Wade. Duluth,MN

Answer: I'm glad you enjoy the show. On the student loan front, there's no need to rush. However, anyone with variable rate student loans should mark July 1 on their calendar. If you consolidate after that date you can lock in interest rates 3 percentage points less than the current 7.22%. That's a huge savings over the life of a loan. So, if you're thinking of consolidating, wait. The student loan consolidation market has shrunk with the credit crunch. Hopefully, it will open up again soon.

What's more, on July 1 the clock starts ticking on the new federal program that forgives remaining federal student loan debt after 10 years if you make all your payments on time and work for the government, non-profit, or other qualifying job.

A nice summary of what will happen on July I, 2008 is on the website Project on Student Debt at www.projectonstudentdebt.org. The specific page is http://projectonstudentdebt.org/july1-2008.vp.html.

About the author

Chris Farrell is the economics editor of Marketplace Money.
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At the risk of pointing out the obvious, I would add the following: these consolidation programs only apply to federally subsidized student loans. (Again, I'm sorry if this is obvious, but it took me about two years to fully grasp). Private variable rate student loans (like Citi's CitiAssist loans) are not underwritten by the government so they had a higher interest rate at inception and different terms then the federally subsidized loans. Basically: you can not consolidate them into a federal consolidation loan.

(You CAN consolidate private loans through Citi as a PRIVATE consolidation loan to lock in an interest rate but this is different then the federal consolidation program. It's also a relatively new product and the interest rate will be pretty high).

It took me several calls to Citi customer service to fully understand this because they don't explain it very well. It's possible that I'm just not that sharp, but I'd be willing to bet that there are other readers like me who look at their student loan debt as "student loans" rather than as "private student loans" and "federally subsidized student loans." It's a very important distinction because when people talk about consolidating loans, almost always they are referring to the federal consolidation program that does not allow a borrower to consolidate private student loans.

Thank you for adding this. It isn't you. There is widespread confusion over the difference between federal student loans and private ones.

Chris

Several years, one of my business credit cards jacked the rate up as I was a day or two late with the payment. I called the company to cancel the card and was handed over to a manager, who was willing to lower the new interest rate somewhat. In the background, I heard the voice of the first person I talked to. He said, "That won't be enough." And lo, the woman lowered the rate more. I fled.
Recently, without recent cause, the rate on the same card shot from the low 20's to 30. I called and this time, it was obvious that they didn't care whether I stayed with them or not.
Anecdotally, I hear that credit crd companies may be trying to dump customers who do not generate sufficient profits for them.
My advice is to call the credit card company and, if you do not receive satisfaction head elsewhere.

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