No rush to consolidate student loans this year

Check with your current lender
It's a long shot, but try your current lender just in case that lender has remained in the consolidation market, says Betsy Mayotte, director of regulatory compliance and privacy for American Student Assistance. Next, try your local bank. "Most local banks, rather than turn someone away, will at least have some sort of referral service," Mayotte says.

Go online
Or just go directly to the Department of Education's
Direct Loan program for a consolidation loan. "Don't even try to find a federal lender," recommends Kantrowitz.

You'll have plenty of company at Direct Loan.

"I'm projecting it's going to be a five-fold increase in consolidations for the Direct Loan program, more than double the previous peak," Kantrowitz says. "The federal government isn't going to lose money (on consolidations) because its cost of funds is much lower than the lenders' cost."

But Kantrowitz and the Department of Education assure borrowers that the program is adding staff, hardware and software -- as well as ramping up training -- to handle the expected increase. "They're not expecting operational difficulties," Kantrowitz says. "They're gearing up for a significant increase."

Consider unified lending
Not eligible for consolidation? This year, a higher minimum balance may be required to consolidate, but if you're not eligible for this or there are other reasons you can't consolidate, you can still get some of the benefits of consolidating your loans. If you simply want one bill for all your loans, most lenders offer unified billing if all your loans are with that lender, Kantrowitz says.

If you need lower loan payments now but expect your income to rise as you advance in your career, Direct Loan and FFELP each offer options that have lower payments in the beginning, with payments gradually increasing.

Try to reduce the loan's term
Finally, if you do consolidate your loan and get that lower interest rate, consider making the same payment as before so you can reduce the term of the loan. With a lower payment, you'd be saving money on your monthly budget, but you'll pay back more money in the long term because you'll pay more in interest over the life of the loan. And do you really want to be pay on your college loans at the same time you're putting your own kids through college?

"What I tell them is, pay off the debt as quickly as they can," Kantrowitz says. "Student loans have no prepayment penalties."

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