I’m dumb for consolidating my student loan

April 22, 2009 · 12 comments

One of the worst days of my life occurred two years ago this month. I was in my senior year of college and life was good, that was, until I got a piece of paper in the mail that rocked my world. It was a tiny white envelope from my school’s financial aid office. It said I had a mandatory student loan exit interview to attend prior to graduating.

No big deal right? Wrong! I sat down for my exit interview and was given a piece of paper  summarizing my student loan balance. This was the first time I saw the damage in it’s entirety, sitting there laughing in my face. It was a dark day in my life. I was a month away from graduating, had no employment lined up, and was told it was time I started making payments on my over $28,000 balance. I felt like I wanted to throw up. Needless to say, I knew I needed to get my priorities in order and figure out exactly how I was going to tackle the intimidating $330 monthly payment.

I did a little research and discovered the world of student loan consolidation. Everything I read (probably from bank websites and Sallie Mae) preached about how amazing it was (let’s just say I didn’t know about PF blogs back then). I saw that it would lower my monthly obligation and lock in my interest rate. Turns out locking in my interest rate was stupid. I locked in at 7% and am kicking myself in the pants. Interest rates dropped the next year to 6% and are now at 5.6%. Even worse, they are scheduled to continue dropping through 2011 to 3.4%.

Shoot me in the face. I would have gladly paid a variable interest rate for four years and then locked in at the 3.4% interest rate in 2011. I ran the numbers and assuming I made minimum payments for 20 years, I would have saved exactly 10 buttloads of money by not consolidating my loans for the first four years and then securing the lower interest rate. 

I have learned that consolidating is not always the best option, especially when you are consolidating at one of the highest interest rates in recent history. Luckily I only plan to be making payments for another two years , so overall it wont affect me too much.

F you Sallie Mae for tricking me into a 7% interest rate, you win this round.