October 24, 2006
Consolidation – why is it important?
There are a few critical reasons why it’s important to consolidate as soon as possible after graduation:
1) Lock in the lower interest rates.
Why? Congress can raise interest rates every July 1, if it so chooses. You should lock in before a year has passed to avoid getting higher rates.
2) Lock in during your grace period – even lower rates.
Why? A grace period is usually 6 months after your graduation date where your interest remains at the lower, in-school rate. After 6 months, the rate goes up and you begin to pay the loan back. If you consolidate while in your grace period, you lock in the grace period rate instead of the post-grace-period rate. What does this mean in plain English? You save money.
3)Lower your monthly payments
Why? You’re just out of college, paying for a new apartment, gas to get to your new job, paying your own health insurance, making a starting salary – face it, you’re probably not rich. Consolidation lengthens the amount of time you have to pay off your student loans. Most Federal loans give you only 10 years to pay it back. If you have thousands of dollars in loans, that may not be enough time. Consolidate to spread the payments out over time, and shrink what you pay each month.
Also, since we’re talking about Federal loan consolidation, there is no early payment penalty. You can consolidate and get the 15-30 year term period, and pay extra each month to get the loan paid off sooner – you won’t be charged a penalty for this!