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Interest rate calculation - Student loan consolidation

Date: Wed, 12/21/2005 - 11:33
Submitted by 4u.bryan on Wed, 12/21/2005 - 11:33
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Interest rate of student consolidation loan depends upon the weighted average of all the loans put into the program. Let's consider a simple example. Tim has two student loans of $1200 and $1800. The rates of interest are 2.82% and 3.42%.

  • First calculate the per loan weight factor. Multiply loan amount with respective interest rate –

    $1200 * 2.82% = 3384
    $1800 * 3.42% = 6156

  • Perform the same for all the loans you have, then add the per loan weight factors –

    3384 + 6156 = 9540

  • Now add all the loan amounts –

    $1200 + $1800 = $3000

  • Now divide total per loan weight factor by total loan amount calculated in the last step to get the weighted average –

    9540 / $3000 = 3.18%

  • Now round up this figure to nearest 1/8% -

    3.18% to nearest 1/8% = 3.25%


So if Time consolidates all his student loans, the rate of interest will be 3.25%. This rate is capped at 8.25% also.

It sounds good. Some consolidators and financers offer extra facilities also. Get in touch with the counselors to collect more knowledge.


1) What is 1/8% ?
2) How to calculate from 3.18% to nearest 1/8% = 3.25%?


Submitted by on Tue, 07/08/2008 - 06:48

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One correction on above....do not consolidate with financers. Yes they may offer awesome perks for you to consolidate with them. However, these companies will promptly sell your loans to one of the big guys like SM 6 months down the road. Your perks disappear. I always recommend either consolidating with the DirecT Loan program thru the DOE...they have the most options for anyone with a student loan and there is no risk of your loan being sold off.


Submitted by SOAPLADY on Tue, 07/08/2008 - 08:34

SOAPLADY

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