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Question: Is this a good time for me to consolidate my student loans? What
factors should I look at when I'm making a decision?
Answer: There are several advantages to consolidating your loans: to lower
interest rates, to combine all loans and make only one monthly payment or,
if you're in default on a federal student loan, to consolidate your loans
if you are eligible and if certain conditions are met.
Federal student loan rates are the lowest they have ever been. Students
who participate in the Direct Loan Program from the U.S. Department of
Education can consolidate federal loans while in school. They might
receive a lower interest rate than current loans (up to .6 percentage
points). Students at schools using the Federal Family Education Loan
Program, or FFEL, which is administered by the Colorado Student Loan
Program, must wait until they leave school and are in the grace period or
repayment period before consolidating loans.
Student loans may be consolidated through either the federal or the state
guarantee programs. Direct Consolidation Loans are available from the U.S.
Department of Education. FFEL Consolidation Loans are available from
participating lenders such as banks, credit unions and savings and loan
associations. The requirements and options are somewhat different for each
program.
The U.S. Department of Education Direct Loan Consolidation Program is
described at the Department of Education Web Site. To
qualify for a federal reconsolidation loan, you must be attending or have
attended a direct lending school. Click here to visit the Direct Loan Web Site to see if your school is a direct lending school. The federal Direct Consolidation Loan Program will consolidate all students loans - the federal Direct Loans and
FFEL loans. Although all loans may be consolidated by FFEL lenders, some
FFEL lenders do not consolidate non-FFEL loans.
Requirements and benefits for loan consolidation vary according to several
conditions:
- in school or out of school;
- student, parent or married
borrower;
- type of existing school loan;
- loan is current or in
default; and
- repayment plan choices. Have all of this information ready
when you compare various loans.
Borrowers who are still in school may benefit by consolidating loans at a
lower than current interest rate. The consolidated loan interest rate will
be fixed for the lifetime of the loan. Parents who have federal PLUS loans
to finance their children's education are also eligible for consolidation
loans.
I'll have more on consolidating student loans in the next column.
For more information, contact your local
Colorado State University Extension office.
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