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Student loan consolidation can be done once with student loans, but not as rates rise
The amount of debt held by the average college graduate with a Stafford federal student loan is $19,000. This amount has doubled in the last decade as the cost of tuition has risen faster than the rate of inflation. It has certainly made life a lot harder for those who have had to borrow money for their college expenses, which includes much of the middle class.
Rates have been near historic lows for the last five years and the Stafford loans have been popular, as they have provided tens of thousands of students the opportunity to borrow money at a reasonable interest rate. The interest rate has been variable and has been adjusted annually on the first of July each year. An added boost to those borrowing money has been the provision of Federal law that allows students to consolidate their loans one time only. This has been a tremendous help to those who have been carrying a balance for a decade or more. Those students obtained their loans when rates were higher, and the opportunity to consolidate their debt, even once, has saved many students thousands of dollars.
This will all end in July 2006, when the rate becomes a fixed rate, rather than a variable one. The fixed rate means that those with student loans will not have the opportunity to consolidate them anymore; there will not be any reason to do so. Granted, the ability to consolidate over the years has been a mixed one; students were only allowed to do so once, and that has come back to haunt those who did so years ago, as rates fell from above 10% to 8% or so. Those who did so then have been horrified to see rates fall below 5% in recent years as they have not been able to take advantage of them. Adding to the problem is the fact that student loans cannot be wiped out by filing for bankruptcy.
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