Don’t procrastinate – consolidate your student loans!
by Andy Schiller (February 21, 2006)Student loan interest rates are changing this July – are you ready?
Preparing for the Loan Interest Rate Change
It’s true. Rates will definitely go up on July 1, 2006. Whether you can get those pre-July 1 rates if you apply now depends on your lender. Some lenders will guarantee the rate at the time of application, while others give you the rate at the time of approval, which will likely be after July 1 (Sneaky, isn’t it?). Currently, school loan interest rates are at an all-time low. So it would be wise to try and preserve this low interest rate by reorganizing your payment schedule.
Overall, it’s best to have your application finished and turned in as soon as possible, but at the absolute latest your application must be postmarked by June 30 to meet the deadline with most lenders. Now would be a good time to think about refinancing your student loans or consolidating them. It will take some phone calls and a little work to get this done, but it will be worth the effort, so don’t back down. It’s not as complex as it may seem at first.
What do I Need to Know About Student Loan Consolidation?
If you have any loans that are guaranteed by the government (Stafford, Perkins, etc.), they can be consolidated into one loan. Do you have a fixed rate loan or a variable rate loan?
The rate for the new consolidation loan is fixed at the rate you are currently paying for your loans. For loans that already have a fixed rate, like Perkins loans, this isn’t a big deal. But for Stafford loans, it is, because they are variable rate loans, and the rate for these loans is at its lowest point ever.
The rate of interest is guaranteed to go up on July 1, because the rate is changed each year on that day, using the rate for 90-day T-bills at the end of May plus 1.7 percent. As the rate for T-bills went up from last May to this year, consolidation rates will definitely increase, so that is why everyone is recommending consolidation before July 1.
Another reason to consolidate is that the time in which you can pay is often extended, thus resulting in lower monthly payments.
How do I Know if I can Consolidate My Student Loans?
Are you eligible for loan consolidation? If you are already making payments or if you are in the grace period, you can consolidate.
The rule used to be that you couldn’t consolidate if you were still in school, but that rule has recently been changed. This is to your benefit and can make your repayment schedule even easier.
Who do I Consolidate My Loans With?
If your school is a direct program lender (i.e., they directly loan you the money and are funded by the Department of Education), then you have to consolidate with the government.
If the funds are provided by a private lender like the Federal Family Education Loan Program (FFELP), then you have to consolidate through your existing lender. While theoretically the FFELP lender can decline to consolidate your loan, since it’s a guaranteed money maker for the loan consolidator, they never will. You just want to make sure you don’t let them make too much money off of this.
Ask your lender about incentives that are called borrower benefits. The most common borrower benefits are to give you 0.25 percent off your interest rate if you make payments through automatic withdrawal and a certain percent rate cut (typically 1 percent or less) after a certain number of timely payments.
If you still have questions or want advice on whether a certain consolidator is a good one, talk to your school’s financial aid office. Even if you’ve already left school, they’ll probably be willing to help you out.