Thanks to two recent changes, students face the added burden of mixed loans — some fixed-rate, some variable, some already consolidated. (Loans disbursed after July 1, 2006, carry a fixed interest rate of 6.8%, while those disbursed prior have variable rates up to a maximum of 8.25%. That date also marked students’ last chance to consolidate loans while still in school.)
To get started off right, here are seven considerations for grads:
Mind your grace period
Some borrowers can expect to receive their first student-loan statement before their first real-world paycheck. “We saw a huge wave of in-school consolidations over the past few years, as interest rates moved to record lows,” explains Patricia Scherschel, the vice president of loan consolidation for Sallie Mae. “But in doing so, students gave up their six-month grace period.”
Not you? Before you gloat, consider joining their ranks. Consolidating before your six-month grace period runs out snags you a lower consolidation interest rate.
Consolidate — cautiously
But our experts agree: With such high rates, there’s less incentive to consolidate your loans this year. “The reasons students will consolidate are more to do with stretching repayment and lowering monthly payments,” says Kantrowitz.
It doesn’t hurt that one payment to one lender is easier to keep track of than four to different lenders.
With fixed-rate loans in the mix, consolidating may not work out to your advantage. Someone carrying $20,000 in Stafford loans — $15,000 consolidated at 6.625% and one $5,000, 6.8% loan — would pay a total of $7,458 over the life of the 10-year loans. That’s $100 less than the total interest you’d pay by consolidating all the loans under a 10-year repayment schedule.
Shop around for the best deal
In the Emergency Appropriations Act of 2006, Congress eliminated the “single holder rule,” which had required students with loans from a single lender to consolidate with that lender. Take advantage of the switch to let lenders compete for your business, advises Kantrowitz. It pays to do some comparison shopping.
Start by making a list of your loan amounts and lenders (access your loan data here at the Department of Education’s National Student Loan Data System), then work your way down the list of lenders to compare offers.
Call your current lender(s) to check the fine print first, says Kantrowitz. It may actually be cheaper to stay put. “Many lenders have included fine print that says you have to repay any discounts if you switch,” he says. That includes the 4% origination and default fees assessed at Stafford loan disbursement, which many lenders waive.
Keep private loans separate
Federal Consolidation Loans, by definition, can include only federal student loans. So steer clear of lenders that offer to let you consolidate both federal and private, cautions Brad Baldridge, a certified financial planner in Hales Corners, Wis. These hybrid loans won’t be as low and don’t often carry repayment discounts.
And keep in mind, the rate is tied in part to your credit score. Late payments on that credit card could send your rate skyrocketing.
Source : moneycentral