Student Loan Consolidation

Student loan consolidation is a hot topic these days for students and parents all over the United States. As of July 1, 2006, the rules and interest rates will be changing so decisions must be made in a timely manner. For instance, in the past it was possible to consolidate your student loan before graduating, while you were attending school. As of July 1st, however, this will have changed and you will have to wait until the end to combine the loans into one smaller payment spread over more time. Student loan consolidation will also change on that date as far as the interest rate; rumor has it that rates will be rising rather dramatically July 1st. This is not the time to procrastinate on a decision. If you have plans to consolidate your student loan, it is best to start now because July will be here before you know it.

Student loan consolidation has many long term benefits. However, there are some instances where there are drawbacks as well. Since typically you are only allowed to consolidate once over the lifetime of the loan you will need to weigh your options carefully before doing so. Borrowers are able to reconsolidate more then once if new federal loans are taken after the consolidation. The problem here is that once an interest rate has been "fixed" it remains the same no matter how many times you reconsolidate your student loan. This is why the July 1st date is so important. At this moment rates can be found as low as two and three quarter's percent. After that time it is said the rate will be rising substantially thus costing you several thousand dollars more over the life of the loan.

Student loan consolidation is best accomplished during the grace period after graduating. Many times if consolidating during the grace period you may retain the entire grace period before repayment begins, however if you consolidate your student loan before your grace period begins you will loose that time off payments. Student loan consolidation is often sought when a major life change is about to happen, such as buying your first home. One of the drawbacks to consolidating is that is spreads the payment over many years, sometimes as much as thirty years, resulting in a lot more interest being accrued and paid. You may wish to think again about consolidating if you are close to paying off your student loans. It is also good to consider paying off as much of your loan as soon as possible or making more than the minimum payments so the extra goes to your principal and reduces your interest.

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