Comments on: Student Loan Consolidation (Your Advice)

By: Ritu Agrawal

Ritu Agrawal — Mon, 26 Oct 2009 02:25:18 +0000

Consolidating loans is the first step to avoid bankruptcy. Consolidating my student loans on the last day of my senior year was one financial decision that I have been more grateful for than any other. It helped me keep my monthly payments manageable and spared me from worrying about interest rates going up (which they did soon after I graduated).

There are two types of student loan consolidation that you can do:

Convert a loan with a variable interest rate into one with a fixed interest rate.
Combine a number of loans taken from different lenders into a single loan with only one payment to be made each month.
(Note to students with a Federal PLUS or Stafford loan taken out prior to 2006: you are probably on a variable interest rate schedule and are very vulnerable to interest rate hikes that many economists believe are coming. Definitely look into consolidation!)

For example, say you have $20,000 in a Federal Direct Stafford loan at 4.21% and an Federal PLUS loan of $15000 for 8.1%, you can consolidate both into a fixed loan at 5.875% with monthly payments of $248.

Remember that you can only consolidate your student loans once. With interest rates overall at historic lows, now

By: James

James — Fri, 27 Jun 2008 09:38:53 +0000

Your interest rate will most likely only get gamier in the coming years. But maybe in five to ten years they will go way down. I consolidated in 2004 at 3.5%. Consolidating now may be a good option but most student loan companions want over 15k or 20k for you to get that interest rate reduction.This is good for student to complete them studies.

By: Jason

Jason — Thu, 19 Jul 2007 18:32:56 +0000

J – you make some good points. However, most consolidation companies require a much lower than 15K or 20K minimum to be eligible. The norm is probably more like 10K. Some companies like Wells Fargo,U.S Bank, and Citibank have no minimums whatsoever to get the 1% after 36 on-time payments. However, you do need to make sure you have enough debt that debt actually exists after making 36 payments. Anything federal loan amount above 2K will see benefits. As to your 5% projection in terms of people who realize your benefits, that may have been true in the 90s but now with auto-debit and bank pay software, a much higher percentage of people are making their payments on-time. Not to mention, a lot will give you a 15 day grace period and as long as you remember that if you get into trouble, you can always request a forbearance or deferment to protect you from ever making a payment rate. Your expectation percentage can jump skyward easily. The norm is probably in the 20 – 25% range conservatively speaking. However, watch out for companies that terminate your on-time payment benefits when requestion a forbearance or deferment. In my previous post, Sallie Mae was the only company that I know for sure pulls benefits during a voluntary forbearance. You should be safe with Wells Fargo, Chase, Citibank, and Educational Loan Company. But always double check on their websites.

By: Maria

Maria — Mon, 16 Jul 2007 21:03:00 +0000

Either that or go teach ESL in Korea for a couple of years. If you have a degree, you can save a lot of money there. That’s what my son did. He owed $80,000 in student loans!

By: J

Sun, 15 Jul 2007 02:49:08 +0000

Your interest rate will most likely only get higher in the coming years. But maybe in five to ten years they will go way down. I consolidated in 2004 at 3.5%. Consolidating now may be a good option but most student loan companies require over 15k or 20k for you to get that interest rate reduction. Double check that you actually have enough of a balance owed to get that reduction. Also, you can check with other companies to see if there are better offers but realistically the amount of people who actually make all those payments on time is somewhere below 5%. Once you miss one payment, that option is gone. You don’t start all over again.

If you have -50k in student loan debt most of it must be private student loans which means you must have higher interest rates on those. In that case, you might want to reduce your payments on your federal student loans to interest only (they call them graduated plans, interest only for two years and then they up the amount due to include principle after the initial years). Use the extra cash you save there to help pay off the private debt first. You’ll save more money that way.

Whatever you do, I wouldn’t pay them off all at once. Federal loans are very good for your credit rating. Pay everything else off first, ride those out as long as you can.

One more thing, are you currently employed? If you can get a unemployment deferment on your student loans the interest rate goes down .6% and you can consolidate then. That will lock your interest rate at 6.625% . For people graduating college right now, you should consolidate while you’re in grace period and you’ll get the same thing. Your consolidation company can also wait to complete the consolidation until your grace period/ deferment is up so you don’t have to make payments right away.

By: Jason

Jason — Sat, 14 Jul 2007 17:36:12 +0000

You will probably be wiser taking up student loan consolidation now versus waiting for the rebate. Also, you may want to look for a better than normal 1% discount after 36 months that Citibank, Sallie Mae, Wells Fargo, Chase and other promote. Educational Loan Company offers a 0.50% discount for auto-debit and 1.25% discount after 24 on-time payments which would bring you down to a fixed interest rate of 5.5% after only 2 years thus saving you more. Either way, it would be wise to go with interest rate discount versus the rebate in most cases.

You are also doing very well with your 11K in your savings account and you are getting a good safe return on it. Remember, there are no prepayment penalties on federal consolidation. Thus, you could keep making minimum payments (remember you will add interest costs this way) and continue to build up your savings account at the same time always have the luxury of cashing out and paying down your fed consolidation debt. This would allow you to build up a very nice safety net for those life emergencys and/or opportunities.

Teri is right about the tax deductions. But keep in mind, if marriage is in your future, and your new wife earns less than $47,000 (total $130,000), your interest will be tax deductible.

By: Family Savings

Family Savings — Fri, 13 Jul 2007 21:30:59 +0000

You have been tagged:

http://familysavings.blogspot.com/2007/07/8-interesting-things-about-myself.html

By: Amber Yount

Amber Yount — Fri, 13 Jul 2007 19:13:38 +0000

Hmm I would pay it off quickly if thats his only debt. He could use some of that savings.

By: BC

BC — Fri, 13 Jul 2007 18:15:46 +0000

Beware, student loan co’s are pretty sneaky with those rebates. One trick is to send your first bill out only a few days before it’s due, so your a few days late on the first payment, then you loose it…it’s pretty common

By: Teri

Teri — Fri, 13 Jul 2007 16:55:40 +0000

Clarification – in 2007 the income limit is $70k. Regardless, doesn’t help your situation.