2008-12-08T02:55:00.000-08:00

Consolidate student loans only if it's right for you
Updated 9/21/2007 9:53 AM | Comments 2 | Recommend 8 E-mail | Save | Print | Subscribe to stories like this

SAVING, BUT HOW MUCH?
Some discounts are more valuable than others. This table compares the equivalent value of discounts offered by lenders when borrowers consolidate their loans. It assumes a 10-year repayment period and a 6.8% fixed rate.
Benefit
Equivalent value
1% reduction at the start of the loan
1%
1% reduction at start of repayment*
0.78%
1% reduction after 48 on-time payments
0.33%
1% reduction in fees charged to borrower
0.23%
1% reduction in principal after 48 on-time payments
0.12%
Source: Project on Student Debt.
* Assumes 4 years of accrued interest without discounts while student is in school.

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If you don't consolidate your student loans by Oct. 1, you may pay higher interest rates and fees for your loans, and your hair will fall out.

OK, we made up the part about the hair. But the language in some marketing campaigns by student lenders and loan consolidators is pretty alarming.

The website for EdFed, a student loan consolidator, warns, in red type, that "if you miss the (Oct. 1) deadline and consolidate your federal student loans after that date, your consolidated interest rate could be at least 1.25% higher!"

The website for ScholarPoint cautions that "Congress recently passed new legislation that will significantly reduce or eliminate the ability for ScholarPoint and other education finance companies to offer money-saving borrower benefits."

In past years, loan consolidation allowed borrowers to lock in current interest rates, a money-saving strategy three years ago, when rates were at all-time lows. But last year, Congress eliminated variable rates for Stafford loans. Loans issued after July 1, 2006, have a fixed rate of 6.8%.
FIND MORE STORIES IN: Congress | United States Treasury Department | Labor Day | Your Money | Stafford | Project | Student Debt | Robert Shireman | Kevin Walker | FinAid.com

What's behind the latest push? The $20 billion student-aid bill approved by Congress earlier this month boosts federal aid for low-income students and gradually lowers rates on new federal student loans.

But to pay for these provisions, Congress slashed the subsidies the government pays private lenders that provide federally guaranteed student loans. President Bush is expected to sign the bill.

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