This spring, students will be graduating from college. How can they get off to a good start when it comes to paying back their student loans?
One choice is to consolidate your loans. A Federal Consolidation Loan combines all eligible loans into one new loan that is guaranteed by the federal government. This new loan has a longer repayment period, a fixed interest rate that can't be higher than 8.25 percent, and only one payment per month. Most importantly, borrowers who apply for a Federal Consolidation Loan before July 1 may be able to lock in an interest rate as low as 4.75 percent for the length of their repayment period, which can be as long as 30 years.
Patricia Scherschel, vice president of loan consolidation at Sallie Mae, the nation's leading provider of education funding and the largest consolidator of student loans, says that borrowers should carefully consider their decision before consolidating. She says that most people with student loans can benefit from consolidation, but it is important for them to make an informed choice.
Scherschel says, "This is the start of a long-term financial relationship with your loan consolidation company." "Before you sign on the dotted line, make sure you take the time to ask questions and fully understand your interest rate and any possible discounts."
Scherschel has some tips for people who may be thinking about consolidating their loans.
Contact your college's financial aid office for advice and information about lenders you can trust. Since consolidation lets borrowers extend their payments for up to 30 years, it is important to choose a lender with a good reputation, experience in the industry, flexible payment options, and great customer service.
• Look into the borrower benefits programme of a lender. Sallie Mae is one of the many lenders that will lower your interest rate if you pay on time or use direct debit. Make sure to read the fine print of the benefit programme to find out if, when, and how you can get the benefit and how you might lose it.
"Free" is a word to watch out for. Consolidation Loans do not have interest, but lenders are not allowed to charge borrowers a fee to combine their loans. It's important to know all the costs right away.
Don't forget about deadlines. The interest rates on federally backed student loans are expected to go up on July 1. At today's interest rates, people who consolidate their debts could save hundreds or even thousands of dollars.
Scherschel says that the best way to protect yourself from an increase in interest rates is to combine your debts. "Once final exams are over, current students and graduates from this spring should only think about one thing: getting their consolidation application in before June 30 at midnight."
