November 16, 2006

More reasons to consolidate

Posted in Student Loan News at 8:54 AM by Joe From Boston

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

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.”



  1. Justin,

    I definitely agree – information is your best weapon when it comes to student loans. Not knowing the basics can hurt you.

    Borrower benefits differ greatly from state to state and lender to lender. You’d be surprised what some of the non-profit lenders don’t offer for borrwer benefits… I speak from personal experience regarding my and my husband’s loans. And I see lots of cases at work where shall-remain-nameless corporate giants drive people to deals that are not the best for that person’s situation. It’s unfortunate, but it’s true.

    And in some situations, because of a lack of funds at the moment, students have to consolidate to make a lower payment now while job-hunting, regardless of benefits down the road. These are cases where forebearance or deferment might not be an option, but a lower loan payment now makes the difference between paying rent or not.

    My goal here is to give as much information as possible to my readers make the best decisions. With grace periods ending this week, it’s imperative that people review their situation before the rates rise, because like I said earlier, they can’t go back.

    p.s. Thanks so much for commenting, I’ve really enjoyed this discussion!

  2. Justin - Graduate Student, Baker College said,

    Everything you say in the last post is true. I think we agree (from reading your other posts) that information is the key and every borrower needs to be aware of his or her situation, examine what benefits – if any – they have, and then make a decision whether or not consolidation is the option for them. I suspect more people have borrower benefits than they realize as sometimes the hype to consolidate overshadows what some lenders (especially nonprofit lenders) are already offering their students.

    Very best –

  3. Justin,
    I conceded your point. However, I hope you realize just how VERY lucky and how rare your situation is. THe vast majotiry of students gain by consolidating. VERY few lose.

    While what you say about the Michigan Higher Education Student Loan Authority may be true, what I see at work every day is people whose rates jump the day their grace period ends.

    Most of our customers don’t realize what a grace period actually means, just that it’s 6 months of not paying loans. Rates jump the day after your grace period ends, and you can’t go back. If you don’t consolidate before that, you lose your grace rate. And by far the mjoriy of students do not have the luxury of looking forward to a 0% rate after 36 on time payments.

    Also, most students don’t realize that one late payment will stop those borrower benefits, and the 36-on-time payments does not restart. It is one-time only.

  4. Justin - Graduate Student, Baker College said,

    Whoa!! Hold on there! Not EVERY student should consolidate. Some students have borrower benefits that they lose by consolidating their loans. For example, my federal Stafford loans are through the Michigan Higher Education Student Loan Authority and I get a 0% (along with thousands of Michigan State Students) interest rate after three years of on-time payments.

    I would lose those benefits by consolidating. If I plan on taking 10 mo more years to pay off my loans, it is much better to stay with the 0% than opt for consolidating and fixing in an interest rate. Every student needs to understand the pros and cons of consolidating – especially what they could be losing through existing borrower benefits.

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