I have 2 private student loans at the following variable interest rates:
1) Prime + .5%
2) LIBOR + 4.5%
Given the current interest rates, this is GREAT and I'm paying around 3.75% interest (yay!) but I am scared about how high Prime and LIBOR can go in the future. I found one private student loan consolidation loan that can give me a FIXED rate of 7.5%. Should I convert my loans over and pay this higher fixed rate for peace of mind? or keep the lower variable rates? I'm leaning towards fixed...what do you think?? Thanks!
I'm no expert, but I am under the understanding & opinion that unless it's over a very brief time period, you're always better off with a fixed rate.
How much longer left on the loans? And how often do they reset? If you have many years left and it re-sets annually, you can watch the rates throughout the year and if it looks like they're climbing, consider a fixed. Right now though, there's no way I would jump on a 7.5% fixed rate. If you can get a fixed rate in the 4% range then I would take that but to almost double your rate when there is no indication that either rate will jump up any time soon? No way, not right now. FWIW, the LIBOR has been under 2% for 3 years and the last adjustment to the Prime rate was more than 3 years ago. I don't see the US or European economies doing an about face any time soon so I would hold the variable for a while until things start to move, unless you get a fixed in the 4s.
Without knowing how long the loan is for, you can't really decide ;)
Find a good online student loan debt calculator and run the numbers. A fix rate isn't always better.
I'd be hesitant to rush into a fixed. In fact, we are on an ARM with our mortgage and it will reset in August. We aren't rushing into a fixed because if things stay the same, our rate goes DOWN 1%. Paying to refinance just isn't necessarily worth it. Online calculator are great for helping to make these decisions.
I am def not a financial expert, but I do have a fixed rate of 2.5%. I would search around with different companies and see if you can do better. I did set mine up years ago though so the avg rates could be up from when I consolidated.
How long do you think you'll have these loans for? That would be a big part of a deciding factor! I see no sense in doubling the rate at this point - you could also choose to go fixed if the feds started upping the prime rate.
