It seems that student loan interest rates only want to go up... They have been rising steadily for at least three years. Maybe go with the capped interest rate.

go with the fixed all the way. i was taking out student loans a few years ago at 2.875%. it's amazing what a difference a few years of rising interest rates can do. don't count on rates heading back down to that territory anytime soon.

wtf. My student loan in the UK is directly indexed to inflation. 3% or lower over the last economic period 10 years+. My bank charges me 7.5% on the loan I took for my car!

Having been in college in the late 80s and early 90s, when interest rates were also high and no end was in site, I had the opposite experience of some here. At the time Stafford loans were variable but with a 10% max. Some variable supplemental types of federal loans were in the 10% to 12% range, so it seemed like a better deal to take the fixed versions that were at about 8.25% at that time. We were being told the same thing - that rates were only going up and that locking in a fixed rate was the best idea.
However: by the time I finished college and grad school 7 years later rates were dropping steadily. It was somewhat frustrating that at the point a few years after graduation, when I decided to consolidate my loans, that the lowest rate I could get was only a little under 8% (because consolidation loans are based on the weighted average of all your loans' interest rates) while people who'd taken their first loans more recently were getting rates as low as 3.5% for consolidation loans.

I'm not saying that you should expect rates to drop that low ever again. I think that's unlikely. But I'd say that you might want to consider some factors like: do you already have any loans? for instance from your undergrad years? How many more years do you expect to be in school? What's your total debt going to be when you graduate? Do you think you'll be able to handle the payments right out of school, and keep the loans on a level 10-year payment plan? Or are you going to have to do an income-sensitive plan for a few years and then have higher payments later? Or do you think you'll have enough debt that you'll probably want to consolidate, possibly on a 15- 20- 25- or 30-year payment schedule?
All of those factors could affect which would be the best thing to do right now. Some of the decision would be based on conjecture about what will happen to interest rates on the future, and what your own financial situation might be...

If you're considering a large total student loan debt (say over 60k) you might want to spend the few hundred dollars for session with a qualified financial advisor NOW to help you plan out the best things to do now and to see what the future might hold in terms of repayment plans and amounts.

this discussion has been illuminating...

Aluminate -- where would one find these financial adivsors? through our banks, or...?

thanks,

"finance novice"

thanks for the input everybody.

i'm only going to school for another 2 years and have no significant prior debt. barring complete economic collapse, i don't think interest rates will decline in that time. therefor i agree that fixed is the way to go.

but even if interest rates decline again in that time, you could always get a low interest loan to pay off the high interest loan and lock into the lower interest rate right? isn't that essentially what consolidation is?

Well, consolidation is - as it sounds - a way to combine multiple loans, and sometimes to re-set the term of the loan, and sometimes re-set the payment terms (for instance by getting an income-sensitive plan or a graduated payment plan at the beginning.) A consolidation loan typically takes the weighted average of all of your loans at the time that you consolidate, and makes that the permanent interest rate for all. So for instance, if you have some Perkins loans at 5% and twice as many Stafford loans that are at 8% at the time that you consolidate, then the interest rate for your consolidation loan will generally be 7%. Sometimes it can be further lowered by deals like making every payment on time for a certain number of years and/or by setting up automatic payments. Those sorts of incentives are lender-specific.

As far as getting a lower interest loan to pay for higher interest loans: this is often a pretty difficult thing to do - unless you're doing it with a home equity loan or some other collatoral loan. Typically student loan rates at any given point in time are significantly lower than the rates for consumer loans for someone with even very good credit.
More importantly, you can't take out more federal loans to pay for existing loans (no, that's not exactly the same thing as consolidating), and if you do something like get a private bank loan or pay for your student loans with low-interest deals offered by your credit card then you've converted your student loans into consumer loans - and that's something that can hurt you when you go to do something like buy a house. Student loans are viewed differently (much more favorably) by lenders than credit card debt and consumer loans. So if interest rates dropped drastically enough that it made sense to get a private loan to pay your higher-interest student loans then you'd need to look at whether this would be a liability in terms of any major purchases you're planning at that time.

Also, once you convert your loans into something other than a federal student loan you will lose a lot of protections - such as being able to get forbearance during periods of unemployment, disability, etc., and various other conditions that can lessen or eliminate certain types of student loans (note that some of these conditions can also be lost when you consolidate, even with a federal consolidation loan - for example if you consolidate Perkins loans with other loans you will usually lose the possibility of loan forgiveness for things like teaching in designated teacher shortage places, various other obscure career possibilities. So always read the fine print.)

As for where to find a financial consultant: I got an hour of free consultation through a credit union where I had an account, then I paid about $300 for some additional time and recommendations. I did this in between undergrad and grad school and it was worth the money. I'd suggest looking through credit unions, banks, investment companies, etc. with whom you might already be doing business. Your student loan company may also some type of more in-depth consultation service too.

I tend to agree with you that in the short-term interest rates will rise. If you're borrowing a manageable amount and will be able to follow a level 10-year payment plan when you get out of school then the fixed rate is probably the way to go.

One other important note about consolidation loans: you can only consolidate student loans once. The only way to consolidate more than once is if you have additional student loans that you didn't consolidate the first time. For example, I first consolidated my Stafford and supplemental loans a couple years after graduation. At that time I didn't include my Perkins loans. So some years later I was able to consolidate a second time. At this point I would not be able to do it a third time unless I went back to school and took out new federal loans.
So: if you ever do consider consolidating, make sure to consider carefully whether it seems like the best point in time. If any of your interest rates are variable and if interest rates do seem like they might be about to drop - even a little - then think about waiting. Even 1/8th of a percentage point can amount to many thousands of dollars in the long run of a large consolidation loan.

I see students get overly optimistic about consolidation possibilities because of those ads and postcards by the loan companies that imply that you can make your $1000 per month loan payment turn into $300 per month by consolidating. Realistically that could only happen if you went on a 30 year repayment schedule AND you had really low rates on more than half of your loans to begin with - so that's not going to be possible if all of your loans start at 8% or more. And if you take 30 years to pay your loans and they're at 8% you'll end up paying more than twice what you borrowed. If you borrow 100k at approx. 8.25% fixed your monthly payments are going to be over $1100 and the lowest you're going to get by consolidating is still over $600 per month, and those lower payments aren't the result of a lower interest loan, they're the result of stretching payments to 25 or 30 years.