If you missed the July 1, 2006 deadline to consolidate your federal student
loans before the interest rate rose, don't panic. You have some options if you
need to reduce your monthly payments. This information applies only to
your federal student loans (Stafford or PLUS loans). Private loans (i.e. from a
bank) are not affected by the increased interest rate stemming from the 90-day
T-bill rate.
What is Consolidation?Consolidation is taking your federal student
loans, issued at different times and at different rates, and combining them into
one single loan with one interest rate, and one monthly payment. The interest
rate is determined by your consolidator based upon the weighted average of your
outstanding loans; larger loans will be weighted more heavily than smaller
loans.
What is the Current Interest Rate?
- The interest rate on Stafford loans first disbursed on or after July 1, 2006
is fixed at 6.8%.
- The current interest rate on Stafford loans first disbursed July 1,
2005?#8364;“June 30, 2006 is 7.14% in repayment and 6.54% during in-school, grace, and
deferment periods.
- The interest rate on Stafford loans will never exceed 8.25%.
I'm Still In School, What Should I Do?Nothing. With the change in the
laws brought about by the Deficit Reduction Act of 2005 which took effect on
July 1, 2006, you can no longer consolidate your loans while you're in school.
You'll need to wait until you're in re-payment - usually about 6 months after
you graduate - to consolidate your loans. By then the interest rate may have
dropped, so take advantage of the mandatory grace period while you can.
What if I Have Already Consolidated Some of My Federal Loans?Leave them
alone! They'll be unaffected by the rate increase, and if you include them in a
future consolidation, you may end up with a higher interest rate on them. The
interest rate of any consolidation loan will be the weighted average of all the
loans being consolidated rounded to the nearest one-eighth of one percent, so if
you consolidate a lower interest rate loan with a higher rate loan, you'll end
up paying more on the lower-rate loans after consolidation.
I'm in Repayment and I Missed the July 1 Deadline, What Now?Don't
panic. Interest rates may go down in the future, so if you're comfortable with
your current monthly payment, it may make sense to wait and see what happens
before you move to consolidate.
If you do need to, or want to, consolidate, take the following things into
consideration:
- If you have only one lender, you'll need to consolidate with that lender.
Talk to them and see what options and incentives they have. Many lenders offer
an interest rate reduction after twelve consecutive on-time payments, or if you
sign up to have your payments automatically deducted from your bank account. If
you're not sure who has your loans, go to the national student loan data system
at www.nslds.ed.gov.
- Student loan lenders offer a number of payment options, so do your research
before consolidating your loans to find the best option for you - whether that
means extending your repayment term or looking for the best interest rate, or
even for a graduated repayment plan in which your monthly payment increases over
time, offering lower payments now, and higher payments when you're more
established in your career. Don't hesitate to let lenders know you're comparing
offers and see what they can do for you. Check out consolidationoptions.com
or estudentloan.com
to get an idea of what is available to you, but keep in mind that consolidating
your federal loans with a private lender will extinguish some of the
benefits offered by federal loans.
- Another possibility is loan serialization in which a lender purchases your
loans from other lenders, then allows you to pay the loans back one at a time.
Unlike consolidation, these loans remain separate. The payments are usually
lower, but the repayment period may be longer and the interest rates continue to
be variable.
- Look into loan-forgiveness programs. You may be able to have part of your
student loan debt paid or erased if you work for a specified period of time, in
a low-income area as a doctor or a teacher. There are a number of programs
available, so if you're in a high-demand profession (teacher, doctor, etc.),
this is something worth investigating.
Financial aid officials across the country offer this advice:
- Work with an established, well-known college lender, and avoid newer lenders
who may not be around in a few years.
- Ask for incentives, such as interest rate reductions if payments are always
made on time.
- Read the fine print.
- When in doubt, ask for help from a college financial aid officer.
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