Question: Is this a good time for me to consolidate my student loans? What factors should I look at when I’m making a decision?
Answer: There are several advantages to consolidating your loans: to lower interest rates, to combine all loans and make only one monthly payment or, if you’re in default on a federal student loan, to consolidate your loans if you are eligible and if certain conditions are met.
Federal student loan rates are the lowest they have ever been. Students who participate in the Direct Loan Program from the U.S. Department of Education can consolidate federal loans while in school. They might receive a lower interest rate than current loans (up to .6 percentage points). Students at schools using the Federal Family Education Loan Program, or FFEL, which is administered by the Colorado Student Loan Program, must wait until they leave school and are in the grace period or repayment period before consolidating loans.
Student loans may be consolidated through either the federal or the state guarantee programs. Direct Consolidation Loans are available from the U.S. Department of Education. FFEL Consolidation Loans are available from participating lenders such as banks, credit unions and savings and loan associations. The requirements and options are somewhat different for each program.
The U.S. Department of Education Direct Loan Consolidation Program is described at http://loanconsolidation.ed.gov/borrower/bapply.shtml. To qualify for a federal reconsolidation loan, you must be attending or have attended a direct lending school. Go to www.ed.gov/offices/OSFAP/DirectLoan/schools/schoolin.html to see if your school is a direct lending school. The federal Direct Consolidation Loan Program will consolidate all students loans – the federal Direct Loans and FFEL loans. Although all loans may be consolidated by FFEL lenders, some FFEL lenders do not consolidate non-FFEL loans.
Requirements and benefits for loan consolidation vary according to several conditions: 1) in school or out of school; 2) student, parent or married borrower; 3) type of existing school loan; 4) loan is current or in default; and 5) repayment plan choices. Have all of this information ready when you compare various loans.
Borrowers who are still in school may benefit by consolidating loans at a lower than current interest rate. The consolidated loan interest rate will be fixed for the lifetime of the loan. Parents who have federal PLUS loans to finance their children’s education are also eligible for consolidation loans.
I’ll have more on consolidating student loans in the next column.
by Judy McKenna, Ph.D., CFP, Family Economics Specialist, Colorado State University, Cooperative Extension, email@example.com, 491-5772