Re: Is now the time to consolidate my student loans?
My two cents on this issue is lock it in before the variable rate changes again, which will be on July 1st of next year. You have some time, but if you are caught sleeping the rate on the variable portion is capped at 8.25% and may get their if our economy recovers and fears of inflation arise.
There is a minimal increase in the interest rate on the variable portion of your loan that occurs when you consolidate (The rate of the variable portion of your student loans is rounded up to the nearest .125%, or in your case from 2.2% to 2.25%), so locking it in next spring will save you that interest increase. Your consolidated rate will be unaffected, because it is based on a weighted average of the rates you are currently paying. If you do not lock them in before July1st of 2010, then the variable portion of the loan will reset based on the change in the 91 day T-bill auctioned on June 1st. The rate you pay on the variable portion is the aforementioned auction price of the T-bill with a set addition.
I locked mine in last year when the 3-mo t-bill was around 1.8% meaning that I am paying just shy of 4% on my student loans, and had I waited I could have locked it in at around 3%. With the interest rate on the t-bill at 0.18%, you are not going to see a drop of 1% as you can not take 1% out of 0.18%.
As far as paying my student loan down, I have a car loan and a mortgage that both have interest rates greater than my student loan. As a result I am going to pay these down first as the car loan is not tax deductible, and to claim the interest on my mortgage I have to give up my standard deduction, so the tax savings there is not what people advertise.