Lock in low student-loan rates

By Marshall Loeb, MarketWatch
Last Update: 4:07 PM ET Jun 16, 2006

NEW YORK (MarketWatch) -- Attention college students, recent grads and their parents: Interest rates on federal student loans are set to jump on July 1. You have just two weeks to consolidate and lock in a lower fixed rate.

If the above reads like an advertisement from a loan consolidation company, it's because my e-mail has been flooded with offers over the past month. Consolidation is big business even for giants like Sallie Mae and the U.S. Department of Education itself. But the catch here is there is no catch. The ads are pretty much dead-on.

Interest rates on federally subsidized loans like Stafford and PLUS are reset every July 1 and this year will rise substantially. Stafford loans will go to 6.8% from 4.7% or 5.3% and PLUS loans will go to 8.5% from 6.1%.

By consolidating you can lock in a rate based on the weighted average of your outstanding loans. And since the repayment period will be extended from, say, 10 years to 15 or 20, your monthly payments will drop substantially in addition to the interest-rate savings.
"I would say for 80% of people it's a slam dunk," says Stephen H. Joyce, director of student aid at Bowdoin College in Brunswick, Maine.

Seniors, recent grads who still have substantial debt and parents paying off PLUS loans all stand to save thousands.

Who shouldn't consolidate? Students still in their first three years of school, when more loans, and thus separate monthly payments, are imminent, says Joyce. He also recommends against consolidating Perkins loans, which come with special deferments and forgiveness.

Some things to watch out for: By consolidating students give up the six-month grace period that starts at graduation and the ability to consolidate in the future since student loans may only be consolidated once. With a June 30 deadline to submit your papers, there isn't much time to shop around, either.

Rates are set by the federal government, so you'll get the same deal wherever you go. But some companies offer little benefits that others don't, such as interest rate reductions if you automatically debit your checking account each month. Ask your college's financial-aid office for recommendations.

If all your loans are with one lender, you used to have to apply to that lender first. But a new law signed this week allows those borrowers to shop among all lenders until June 30.
And here's a bright idea: You'll get more time to pay off your debt with a consolidation but there's no penalty for paying it off early. Stick to the same level of payments you have now and you'll save a bundle of money you would have spent on interest over the long term.

https://www.thestudentbox.com/lock-in-low-student-loan-rates-now.php