Financial aid expert Mark Kantrowitz
offers these tips on student loan consolidation:
5 tips for student loan consolidation
•
It's not
a scam: This one-time shot to lock in
the fourth-lowest rate in the program's history
is real, and you won't get a second chance.
•
Shop around:
Since Congress repealed the "single holder"
rule on June 15, you're free to consolidate
with the lender of your choice. Ask your school's
financial aid office for recommendations.
•
Don't delay:
Yes, you can shop around, but with time running
short, you might do best to stick with your
current lender. Since they already have your
paperwork, you can prevent missing the deadline
due to a paperwork delay. Your application
must be "substantially complete"
before midnight on June 30. That means when
Friday night turns into Saturday morning,
you'd better be done. But it's OK if the payoff
of the original loans doesn't occur until
after the deadline.
•
Pick your
discounts: There is surprisingly little
competition on loan discounts among lenders;
the bottom-line benefits don't really vary
much from lender to lender. A popular one,
which will reduce your interest rate 1 percentage
point after 36 months of on-time payment,
sounds good, but the fact is that most students
can't make 12 months of on-time payments,
let alone 36. Focus instead on discounts that
are immediate: cash rebates, shorter on-time
payment period for rate discounts or an additional
0.25 percent discount for signing up for automatic
payments. That way if you do miss a payment,
you'll still get those discounts.
•
Don't extend
your terms: Much of the marketing blitz,
including Sallie Mae's, has quoted monthly
payment savings based on a 20-year term versus
the 10-year term you're probably paying, since
that's the mandated default on federal student
loans. What the marketing doesn't readily
point out is how much more in interest you'll
pay by extending your term. You don't have
to extend your loan terms, nor should you
unless you feel you will have trouble making
your monthly payment. Plus, do you really
want to still be repaying your own student
loans when your children are in college?
