Loan consolidation may be an option if you have multiple lenders, variable interest rates, significant loan debt and/or different loan types. It allows you to combine multiple federal loans into one new loan at a fixed interest rate. A federal consolidation cannot include private loans. Students must be in repayment or grace status to consolidate and can consolidate with the lender of their choice.
Most May 2008 graduates will have at least two Stafford loans with variable interest rates currently 6.62%. In 2006, Stafford loans switched from variable to a fixed interest rate of 6.8%. Under the formula used to determine the new rate on a consolidated loan, lenders use a weighted average of the interest rates on all your loans and then round up to the nearest one-eighth of 1 percent. If all your loans have a fixed interest rate there is no interest benefit to consolidate, but if you had older loans prior to 2006, you can benefit by locking in a low interest rate through a federal loan consolidation.
Variable interest rates on federal loans are adjusted annually in July. If you decide to consolidate it is best to wait until after July 1, 2008. It is projected that interest rates on consolidation loans starting in July will be among the lowest ever.
A growing number of lenders are leaving the federal student loan program because it is no longer profitable. Contact your lender first to determine whether or not they still participate in federal loan consolidations.
For more information go to American Education Services (AES)
Eligible loan types
Stafford Loans, Perkins Loans, Health Profession Student Loans (HPSL),
William D. Ford Direct Loans, Grad PLUS Loans
For a list of all your federal loans – www.nslds.ed.gov
Loan consolidation offers both benefits and disadvantages.
Benefits:
• Fixed interest rate
• Single lender
• Lower, more manageable payment
• Extended repayment period (up to 30 years based on loan total)
Disadvantages:
• Longer repayment term
• Greater interest paid over life of loan
• Interest may be slightly higher that on original loan due to rounding
• May lose certain deferment options
• May lose current forgiveness benefits
• May lose current loan incentives
Posted: April 28, 2008
