Student loan consolidation- so what?

January 14, 2008 6:35 PM

I'm trying to evaluate student loan interest rates for possible consolidation as I get quotes. All the consolidated rates (so far) seem to be the same. What am I looking for?

I've got nearly $33000 in subsidized Stafford loans at 2.8%. I've got another nearly $46000 in unsubsidized Stafford loans at between 6.6% and 6.8%

I've contacted a few companies regarding consolidating, as well as checked out more than a few online calculators for student loans. They all seem to take the average for a consolidated percentage: 5.25% If I auto-debit: %5.00 (monthly payments of $441)

Other than finding a reputable lender (found a few on here already), what am I shopping for?

Plus, is there anyway to judge/guess what interest rates will go to this summer (higher/lower?) If I consolidate then the drop... Or do I just bite the bullet.

Or can I just not consolidate at all? By adding up and taking the raw average of the interest rates I now have, I get %5.15. With the auto-debit, I can beat that at %5.00- but not by much.

posted by rryan to education (4 comments total)

Since interest rates are falling (along with the bottom of the economy), you might get better rates in a few months.
posted by deeaytch at 6:55 PM on January 14, 2008

Personal note on Perkins Loans and some other Direct Loans (from the government)
If you consolidate them you can never cancel them.

Let's say that again: If you consolidate them you can never cancel them.

Not that I'm bitter or anything.

If you are ever thinking about teaching, medicine, social work, anything that might now OR in the future be cause to cancel your loans then don't cancel them.

Of course, juggling the payments on ten different student loan accounts is a whole different can o' worms.
posted by aetg at 7:27 PM on January 14, 2008

The biggest benefit I've found in the five years I consolidated my law school loans is that I locked in the interest rate. For example, I left law school with $120,000 in consolidatable student loans and $17,000 in commercial/un-eligible loans. My consolidated loan got locked in at 3.25% interest for 30 years, and my commercial loans (there are 2 of them) are now at 7.75% and 10%, respectively.

In my exit interview, my financial aid counselor *strongly* suggested I consolidate because the interest rate at the time was just slightly over the rate of inflation (or essentially a zero-interest loan over 30 years). Basically, you can't get a loan that cheap anywhere else, except maybe a rich relative (and the guilt interest is ASTRONOMICAL!).

So, if your loans "lock in" your interest rate in consolidation, that seems to be the way to go. 4-5% now could be 9-10% in 5-10 years. (Ask a financial aid counselor at your school about this...ours knew with a fairly strong degree of certainty what way the interest rates were going and advised us when in our 9 month grace period after graduation was the best time to apply for consolidation).

Your financial aid counselor should also provide you with reputable consolidation companies, who offer cool incentives like a reduction in interest rates with so many consecutive on time payments and/or auto-debit. They also have neat repayment options (like 10 years interest-only + 20 years interest/principal, so you have time to flit around a bit 'finding yourself' in your career before being saddled with huge loan payments). (I chose THE, which is now Northstar for these exact benefits, for what it's worth).

Also, the recently enacted loan forgiveness bill may help you if you do decide to take a public interest job. (I haven't read up on it extensively, so YMMV).

Finally, even after you consolidate (or don't), you'll be snail mail spammed with consolidation mailings. I'm five years out and I STILL receive consolidation requests on a monthly basis (even after "opting out" of such mailings).
posted by batcrazy at 7:54 PM on January 14, 2008 [2 favorites]

If you consolidate you can never cancel.

Not true in medicine, at least. The NIH and PHS programs that pay off your educational debt don't care whether it's been consolidated or not.

If you consolidate at this point, obviously don't include your subsidized Stafford. Only do the other loans.
posted by ikkyu2 at 8:51 PM on January 14, 2008