Consolidate my student loans!
April 1, 2005 12:35 PM   Subscribe

I have a sizable amount of Federal Perkins and Subsidized Stafford student loan debt, and I'm thinking of consolidating to take advantage of current interest rates. 1) Is this a good idea (why/why not?), 2) Through whom do I consolidate? I seem to get offers to do so every day from random companies. Is any one more reputable than any other? The only one of which I've heard is Sallie Mae.

FYI, I'm currently in my 2nd year of a full-time Ph.D. program, so I'll be in deferment for a while.
posted by The Michael The to Work & Money (15 answers total) 2 users marked this as a favorite
when my husband went through grad school and had a couple of different loans, we found it was just easier to keep track of and to pay when we consolidated. And, depending on the interest rates of your loans, some may come down (if I remember correctly). Can't really give good advice on #2. good luck.
posted by evening at 12:46 PM on April 1, 2005

Do it, I graduated from grad school several years ago and my payment went down about $100 a month with the consolidation. The downside is that you're paying for longer, so the loan might actually cost you more in the long run, but you can offset this by paying more than you owe each month which pays down the principal. Also, if you don't mind internet banking, it can be nice to do it with a company that will let you do it all online.
posted by OmieWise at 12:54 PM on April 1, 2005

It's definitely worth the effort to consolidate your loans.

First, by combining them, you will get a single rate of interest and a single monthly statement. This makes it easier to manage.

Second, as OmieWise mentioned, it may extend the life of the loan repayment. When my husband and I did a spousal consolidation, our 10 year payment plan became a 20 year payment plan. This is not necessarily a bad thing. It lowers your expected monthly payment and gives you a bit more breathing space. You can reduce the overall amount you pay back by paying more than your expected monthly payment. Divide one month's payment over 12 months and increase your monthly payment by this amount. At the end of the year, you've made 13 payments of which one is fully against the principal of the loan. This can take years off your loan.

I did mine with Sallie Mae and have not had a problem. Today, my loan is serviced by American Education Services. Again, I have not had a problem. YMMV
posted by onhazier at 1:11 PM on April 1, 2005

I consolidated through the Dept. of Education several years ago when there was a kind of "amnesty" program for people who'd defaulted (that would be me) -- I got locked in to an incredibly low rate, lowered my monthly payments by over $100, and started rebuilding my then-screwed-up credit all in one shot. They also provide several different payment options depending on your loan burden and income after school.
posted by scody at 1:25 PM on April 1, 2005

I consolidated through Southwest Student Services and have been very happy with them, in terms of customer service and reponsiveness and the like. They'll also knock a quarter of a percentage point off the interest if you set up automatic withdrawals from your bank account.
posted by occhiblu at 1:31 PM on April 1, 2005

Here is the consolidation calculator from MOHELA.
posted by mbd1mbd1 at 1:54 PM on April 1, 2005

I'll be consolidating some law school loans myself, so I've been doing some research. The biggest issue I've found is that if you're going to do it, do it before July. That's when the new, higher interest rates are announced. Also, I assumed that if you consolidate you have to start paying right away (i.e. you lose your deferment), but it appears that might not be the case with all consolidators.

There's some good info at Graduate Leverage, which is a company that matches students up with consolidators. I'm not affiliated with them, and I've only recently signed up so I don't know if they're any good, but they do explain things pretty well.
posted by schoolgirl report at 2:10 PM on April 1, 2005

I'm in grad school right now (in Iowa), and every week our financial counseling clinic sends out an email to all students. Lately they've been urging students to consolidate before July 1 to lock in a low rate. Here's a snippet from this week's email:

ARE YOU IN SCHOOL AND INTERESTED IN LOCKING IN THE LOW INTEREST RATES? You are eligible to do so if you have at least one Direct Loan. The Direct Loan program is the only option for consolidating federal loans while in school. If all of your loans are Direct Loans, call 888-758-9730 (EASIEST/QUICKEST OPTION). If you have at least one Direct Loan, but not all, select one of the following options: download and mail application [PDF], or fill out the online application.

[Disclaimer: I have not done this myself.]
posted by lewistate at 2:30 PM on April 1, 2005

I tried to consolidate my undergrad loans, but they wouldn't let me do it now, since I'm in grad school and have another set of loans. You may run into the same problem.
posted by Hildago at 4:13 PM on April 1, 2005

Your current loan provider likely offers a loan-consolidation program. The average interest rate is almost always lower on a consolidated loan. That's really the best reason.

Secondly, it usually lowers your monthly payment (see, all that marketing they throw at you is true).

Finally, most companies offer interest deductions for certain things in an effort to get you to consolidate. For instance, if you make 24-36 consecutive payments without incident, you knock a point of interest off. If you pay it out automatically from your bank account, you get another point off, and so on. This can save you a lot of cash.

I'd say do it, if graduate considerations don't invalidate you.
posted by Captaintripps at 7:53 PM on April 1, 2005

I'm going through this process right now. Until you're out of school, you can't consolidate the loans through Sallie Mae. Consolidation also stops any grace periods for loans.

Sallie Mae and People's Bank (Connecticut Student Loan Foundation) seemed to have the best rates. 2.77 to begin with right now -- then 2.5 for having them take it out automatically. And after four years of on-line payments the rate drops a point to 1.5%. That's pretty sweet interest.
posted by ontic at 11:50 PM on April 1, 2005

I just consolidated undergrad and professional school loans. The number of private consolidation companies was overwhelming, and I eventually went with the public Dept. of Education consolidation (mentioned above). I have a few friends who did research and felt they could get better rates with private companies.

One consideration (that was important to me) is the effect consolidation will have on your rights under your current loans. E.g., with some private consolidation companies you will lose your deferment right (which would not be good since you're still in school). With the Dept. of Education you keep your deferment and almost all other rights. With all consolidation programs I know of you will lose your Perkins loan forgiveness option. That's of concern mainly if you're going into law enforcement, Peace Corps, or teaching in certain low income areas (see Perkins loan website for more info).

Regarding whether you should consolidate, consider this:

"The interest rates on government-backed college loans -- now at historic lows -- are expected to jump by 2 percentage points or more when they are reset July 1. "
"A bill in Congress would end fixed-rate consolidation loans, which will cost the government billions of dollars if interest rates continue to climb. The government pays lenders the difference between the fixed rate and market- based rates. The bill would make consolidation loans variable rate, starting in 2006. "

posted by jwucd at 3:44 AM on April 2, 2005

I consolidated my law-school loans through the Department of Education, mainly because I had an inchoate feeling that the government would have to be more lenient (in the event of a crisis) than a private loan company. It worked out pretty well. I thought the website was easy to use, but the operators were also friendly and helpful when I needed to talk to a person (e.g., when I wanted to customize my monthly payment to an amount much higher than the standard models).
posted by subgenius at 6:24 AM on April 2, 2005

Definitely consolidate if you're eligible! Application is easy (though allow 6-8 weeks for it to finalize), your rate will be lower, your payment will be lower and simpler. Just make sure you shop around for the best deal, and best consolidator.

The biggest issue I've found is that if you're going to do it, do it before July.

Ask each consolidator when they recommend you apply, because some will let you lock in the better of the two rates if your application is submitted within a certain number of weeks (i.e. 2-6 weeks) before the 7/1 new rate announcement.

Also, although the rate becomes official on that date, everyone in the industry knows unofficially what to expect because they're set "based on the sale price of the 91 day Treasury Bill at the last Treasury auction in May." So shop around for the consolidators now, pick one, get the application ready, but don't submit it until you're eligible to take advantage of that "better of two rates" deal.

The base rates for federal loans are set by the feds, but consolidators' discounts, services, and policies do vary significantly when you look closely. When I became eligible, offers started pouring in. I started by organizing the stack by rate discounts. (The ones at the top of the stack were more than 2% better. Since the consolidated rate ended up being 3.something% total and will automatically be dropped another .5% in a few years, over the life of the loan that's a huge difference.)

Several top contenders got crossed off the list after a BBB check showed they were fly-by-nights or unpleasant to deal with.

Finally, I called the top few and asked questions. (If friendliness/service is one of your criteria for picking the consolidator, be sure to ask whether your loan could be resold. Reselling is common, so beware of being reeled in by the nice company, then later stuck with one that sucks. But some will guarantee to hold the loan, no reselling.)
posted by nakedcodemonkey at 9:49 AM on April 2, 2005

I consolidated my med school loans and halved my interest rate. I'd suggest doing it as soon as possible, as rates are back on the uptick.

I did it with Sallie Mae.
posted by ikkyu2 at 11:01 AM on April 2, 2005

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