Student Loan Relief
As a Gen-Xer, I know well the burden of student loans. My wife and I, like millions of others our age, had to deal with a rather sizeable debt burden right off the bat when we left college. But there’s a way to ease the weight of that burden. Very soon, it may be the best time ever to consolidate student loans. It can save you hundreds or thousands of dollars over the life of that loan. Here’s how.
Student loan consolidation - what it is
If you have variable-rate federal student loans, you can consolidate them all into one fixed-rate loan. This is totally above board. In fact, it’s federally managed and regulated. If you’ve exhausted your forbearance period and you can’t get your student loans cancelled, consolidation might be for you.
After consolidation (which is free, by the way), you have one payment per month. There are four different repayment plans with various terms. You might also qualify for a new deferment if you’ve already exhausted yours.
Who should (and shouldn’t) do it
If your monthly payment is a stretch and you have variable-rate loans, you might do well to consolidate. On the other hand, if you’re aggressively paying off the loans and the end is in sight, consolidation is not a good option. You should also know that, like a home refinance, consolidation might increase the total amount you repay, since it extends the number of years of repayment.
To consolidate, you must have Direct or Federal Family Education Loans (FFELs). You cannot consolidate if you’re still in school, but you can if you’re in any other status, including default. I’d like to note here that student loans cannot be discharged in bankruptcy, so if you’re in default, consolidation may be a good option.
Why soon it will be a great time to consolidate
The fixed rate on consolidations is set each July and it’s based on the three-month T-bill auction at the end of May. I’ll spare you the charts and graphs, but T-bill rates are rock bottom, so it’s likely that when the new rate is announced, it will be an all-time low (we’re talking in the 3.5% range for Stafford loans and 4.25% for FFELs).
How to consolidate your student loans
Since consolidation is through the government, you must use their methods and they make it easy.
- Online at https://loanconsolidation.ed.gov/appentry/appindex.html
- By Phone at 1.800.557.7392
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By paper by downloading a form at: http://www.loanconsolidation.ed.gov/forms.shtml
This post published at Advanced Personal Finance.
April 22nd, 2008 at 3:59 pm
What’s the story for people that have already consolidated their loans? Can they “re-consolidate” if the new interest rate is lower than their current consolidated interest rate?
It seems the answer must be no. Otherwise everyone and their college-educated dog would re-consolidate every time the rate reached a new low. We’d all be at the lowest historical rate since graduation.
But if someone knows otherwise please speak up and save us all the trouble of reading the fine print!
April 23rd, 2008 at 6:18 am
Nope. You’re right - you can only consolidate once. I should have mentioned that in the post.
April 23rd, 2008 at 7:10 am
One fixed-rate loan is definitely the best option. BTW it’s very helpful for financial planning and managing budget. Though consolidation is free and can sound real good, additional fees will be added anyway, so it’s better to make timely payments.
June 19th, 2008 at 1:31 pm
I am looking forward to my date to consolidate. My first loan payment is currently scheduled to be due in August, so I will consolidate before it even comes around. You indicate that it increases total by extending total repayment. I was under the impression that if my income were of a certain level they would consolidate and reduce rates, but not extend payment period.
I have no reason to get off the normal 10 year repayment plan. Also at 4.25% it would be better to save or pay other loans back faster. I wish I was still in deferment period and I could get it at 3.625 save ~$800 over the life of my loans.
July 11th, 2008 at 8:12 am
I believe my loans are private - from student loan finance corporation - they told me that I can’t consolidate them - is this correct?