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