Is student loan consolidation a scam and should one do it soon before rates go up?

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I am hearing that rates are going up considerably on student loans and that everyone should consolidate to lock in a lower rate. I am not sure though, because I get to deduct the interest on that loan every tax year and my rate is currently under 5%.

Is student loan consolidation a scam and should one do it soon before rates go up?

You should consolidate, since rates will be going up to 7% or higher. The interest is deductible, but you're still paying more with higher interest rates. Say you're in the 25% tax bracket, and have $10,000 in loans. At 5%, you pay $500 in interest. The tax deduction on the interest comes out to $125, so you've paid $375. At 7%, you pay $700 in interest, the tax deduction is $175, you've paid $525. The worse the interest rate gets, the more (net) you'll have to pay.

Is student loan consolidation a scam and should one do it soon before rates go up?

Rates will be going up on about 1.5% on July 1. All stafford loans after July 1 are at a fixed rate of 6.8%.

I guess you would have to calculate if your tax savings are greater than the interest you will save. (I doubt they are).

Is student loan consolidation a scam and should one do it soon before rates go up?

I wouldn't call it a scam per se. Just like anything else we do in life, do your homework on it before you jump into it. Rates ARE going up by 1.5% (I think in July). And you would be able to deduct the interest on your consolidated loan as it is still classified as an educational loan (what it was orginally intended for). Just make sure whoever you decide to lock in your rate with offers you a good percentage and doesn't have any extraneous fees. Good luck!

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Is student loan consolidation a scam and should one do it soon before rates go up?

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