November 16, 2006
More reasons to consolidate
Here’s an article that I found in the Roanoke Times that spells out exactly why EVERY student should consolidate BEFORE their grace period ends. I also need to stress that you need to shop around. This is very important. Your current lender may not have the best rates – in fact, as you’re already their customer, they’re porbably less likely to offer you the best deal compared to other companies.
Also – do the math. Some discounts sound really great… but don’t actually save you all that much. Visit this article with an example that shows you why.
“Class of 2006 college graduates, listen up. It’s been almost six months since you left school. During this time, you haven’t had to pay a penny on your student loans.
That, as you know, is about to end.
Graduates typically have a six-month grace period after leaving school before their first student loan payment is due.
Soon the reality of all that debt is coming due.
A consolidation loan allows you (or your parents, if they have a federal PLUS loan) to combine several types of federal student loans with various repayment schedules into one loan with one monthly repayment at a fixed rate. Additionally, your payments can be stretched from the standard 10 years to as long as 30 years, depending on your debt amount.
If you want to consolidate your loans, remember it’s a limited-time offer. You have just 180 calendar days — including holidays and weekends — from your “separation date” to capitalize on the 0.6 percent interest rate reduction given to borrowers who consolidate their loans during the grace term.
What’s your separation date? That is the official date in which someone graduates, leaves school or drops below half-time status. It may be your last day of class or your graduation day, Scherschel said.
If you don’t know your separation date, check first with your lender.
You can also find details of your student loans by going to the National Student Loan Data System. The Web site is www.nslds.ed.gov.
The separation date is important to know because if you consolidate your student loans during your grace period, you get the lower rate, which is based on the grace-period rate and is currently 6.54 percent for Stafford loans issued beginning in July 1, 1998, through June 30 of this year. If you hesitate (or procrastinate), and don’t consolidate before the 180 days, the variable Stafford loan rate jumps to 7.14 percent.
The final rate you end up with can be different than the variable rate because when you consolidate, you lock in the weighted average of all your student loans, rounded up to the nearest eighth of a percentage point. If you consolidate after your grace period, you get a fixed rate of 7.25 percent. Do it before and you can lock in a rate of 6.625 percent.
There’s another plus to consolidating. Many lenders will offer further rate reductions under certain conditions. For example [one company] will drop your rate to 6.375 percent if you elect to have your payments directly taken out of a savings or checking account. If you make your initial 36 payments on time, you can further reduce your rate to 5.375 percent. With those two rate reductions, you can save about $4,400 in interest and reduce the 20-year repayment term by nearly two and half years.
Before you settle on one lender, shop around for the best terms. It used to be that if all your loans were with a single lender, you were stuck with that company if you wanted to consolidate. That is no longer the case.
The single holder rule was abolished this year. Now no one has an excuse not to comparison shop.
Scherschel also said that if you applied for a consolidation loan by June 30 when consolidation rates were even lower — 4.75 percent for those in the grace period — you should check with the lender to see if you still qualify for that rate. “We have the ability to use the rate in effect the day the application was submitted,” Scherschel said.”
