Hey, Graduating College Seniors (and Graduating Graduate Students): It's Not Too Late to Consolidate!
Something you should know if you will be finishing your undergraduate or graduate education in the next several weeks: you may want to consider consolidating your Federal student loans now instead of waiting until after you graduate.
What is consolidation?
Consolidation allows you to combine all of your Federal student loans (Perkins, Subsidized and Unsubsidized Stafford Loans) into one loan, and allows you to take advantage of options for extended repayment plans which can extend your repayment period from 10 years to as long as 30 years (there are other repayment options as well: income contingent, standard, graduated, etc).
Why should I consolidate now?
If you are still in school, consolidate your loans with the Federal Government's Consolidation program, and consolidate now, you can take advantage of the lowest interest rate in the history of the Federal student loan programs and lock in the rate NOW so that it is fixed for the life of your repayment.
To explain: Interest rates on the Stafford program are at their lowest rate ever, and in all likelihood when they are reset on July 1, will be raising by 1 to 2 percentage points over the current rate (if the rate reset were to take place today, the new effective interest rate on Stafford Loans would be 1.8% higher than the current rate).1 For students who are currently in school, the rates are even lower (2.77%), since the rate considered when finalizing a consolidation loan is the then current interest rate effective on the loan.
Additionally, if you consolidate while you are in school you will still maintain your six month grace period (you will lose this benefit if you consolidate after graduation).
Why might I not want to consolidate?
If you are a Perkins borrower, you may want to examine the cancellation benefits particular to the Perkins program which may enable you to have a portion or all of your Perkins loan canceled. If you consolidate your Perkins loan, you will lose these specific cancellation benefits. Additionally, the Perkins program has a 9 month grace period and if you consolidate your Perkins loans, you will lose three months of this grace period (since consolidation loans only have a 6 month grace period).
If you have not yet finished your undergraduate (or graduate) study, you may also want to wait to consolidate until your study is complete. Of course, interest rates may not be so low at that point, but consolidating too early puts you into a situation of ultimately having two or more consolidation loans (and you want to avoid that).
Where do I go for more information?
Go to the Department of Education's Loan Consolidation web page at www.loanconsolidation.ed.gov for more information and to apply. You will need your PIN to complete the application, as well as a list of your Federal loans. Get to work -- the end of the term is coming!
1For those of you interested in the details of how I got this, here we go! The Stafford Interest Rate is based on the bond equivalent rate of 91-day Treasury Bills auctioned at the final auction held before June 1st of each year (look at http://ifap.ed.gov/ffelvarrates/07012004VariRate.html for more information). Using the current 91-Day Treasury Bill rate of 2.864% (see http://www.publicdebt.treas.gov/ for the most current rate) and comparing it to the rate determined last May (of 1.07%), you will see why consolidating now makes sense. Remember, that the effective rate on your loan is also subject to an add on to the base interest rate (for loans made after 7/1/1998 the add on is 1.7% during in-school, grace and deferment periods and 2.3% for all other periods). This means that if the new interest rate were set today, the new rates would be 4.56% (in school / grace / deferment) and 5.16% (all other), compared to the current interest rates of 2.77% and 3.37%.