The cost of the consolidation option for student loans: a CBO paper / U.S. Government

Original publisher: [Washington, D.C.] : Congress of the United States, Congressional Budget Office, [2006] OCLC Number: (OCoLC)70879938 Subject: Student loans -- United States. Excerpt: ... THE COST OF THE CONSOLIDATION OPTION FOR STUDENT LOANS 5 Table 1. Average Costs of Consolidation for Variable-Rate Loans Average Cost ( Per $ 100 in originations ) Estimated Using Estimated Using Policy Alternative Historic Interest Rates Projected Interest Rates Consolidation at a fixed rate of the three-month Treasury bill rate $ 4.60 $ 1.50 plus 2.3 percentage points Consolidation at a fixed rate of the 10-year Treasury note rate 40 cents 40 cents plus 2.3 percentage points Consolidation at the variable rate on the original loan 60 cents 50 cents Consolidation at a fixed rate of the three-month Treasury bill rate $ 2.80 70 cents plus 3.3 percentage points Consolidation at a fixed rate of the three-month Treasury bill rate $ 2.90 70 cents plus 3.3 percentage points or at a variable rate of the annually adjusted three-month Treasury bill rate plus 2.3 percentage points Source: Congressional Budget Office. 6.875 percent. Moving to a fixed interest rate on the orig-Costs of Consolidation Estimated Using Historic inal loan eliminates borrowers ' opportunity to lock in a Interest Rates short-term rate when it is well below the long-term rate. Under rules in effect from 1998 through June 2006 and As a result, under those new terms, the cost of the consol-under the assumption of a distribution of interest rates idation option ( based on extending a loan's term to matu-similar to that of the past 20 years, the Congressional rity ) will be 40 cents per $ 100 of principal originated, Budget Office ( CBO ) estimates that the cost of the op-CBO estimates, under the assumption of interest rates tion to consolidate a variable-rate loan into a fixed-rate like those that prevailed over the past 20 years. ( Because loan averages about $ 4.60 per $ 100 of loan principal 12 the terms of th...
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