As I mentioned last week, it’s time to consolidate your student loans. The U.S. News & World Report has a timely article about conslidation as a way of cutting back your costs.
Student loans are basically a way of life for many college graduates. Lately, the interest rates have been so low it’s practically free money. With low rates, there has been little incentive to rush to pay them back. Play time is over.
Kim Clark lays out the details:
Students currently in school could cap payback rates on loans they’ve already taken out at a fixed rate of no more than 4.75 percent. If they do nothing and let their existing loans continue to fluctuate with treasury rates, they’ll be charged 6.5 percent starting July 1. Those who’ve left school and have already started repaying their loans can put a ceiling of 5.375 percent on their Stafford loans, which would otherwise jump to 7.14 percent in July.
The astute reader may realize that the new rates listed in this article don’t match the rates I mentioned a few weeks ago. That’s because the new rates, like the old rates, are based on the United States government’s 91-day Treasury Bill, which fluctuates. Once it’s locked in however, your loans will be stuck at the higher interest rate for another year, unless you conslidate.
There are some interesting points to consider about student loan consolidation, many of which I did not know last year.
- You cannot consolidate any loan that is still in disbursement (being paid to you, the borrower). This may be the case if you are still in school. You can only consolidate loans that are fully disbursed.
- Shop around first. Some loan servicers offer better terms than others, like a reduction of the interest rate after a period of on-time payments. You can’t apply for a second consolidation while a first application is still outstanding.
- Interest begins accruing immediately on a consolidated student loan. If you consolidate a subsidized student loan that is in its grace period, you will lose the subsidy and have to start paying down the loan immediately.
There are more questions and answers on the website of my loan servicer, ACS.
Interestingly, there are some for whom consolidation is not a good idea, but this is a rare occurence.
For those of you who plan to consolidate, make sure you get your paperwork into your consolidation lender by June 30. Even if they don’t have time to process your request by the deadline, they will honor the application according to the date the application was received. Also, it won’t hurt you to send the paperwork in early, either. The lender will make the consolidation effective at the very last minute to minimize your interest expense.
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Unquestionably. The savings aren’t small, either. 184 basis points on a $30K loan balance works out to about $6,300 extra interest over the life of the loan – money that you will pay to Uncle Sam that you don’t have to. I certainly wouldn’t.
Christopher S. Penn
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They won’t let me consolidate my loans, so I am stuck with a high interest rate.