With the new economic trends towards lower interest rates, many students dependent on federal education loans may be asking themselves if now would be a good time to consolidate, in consideration of the phenomenally low interest rates. However, before you make your decision, especially if you are only a freshman, there are several advantages and disadvantages to be taken into account.A consolidation loan allows you to combine all your federal loans into a new loan, thus making it easier to manage and minimizing the amount due per month. Although requiring a larger amount paid over a period of ten or twelve years (four repayment plans are available), if you consolidate while in school, you are entitled to a lower interest rate than graduates-5.39 percent, remarkably down from last year’s rate of 8.19 percent. Such a decrease might tempt one to wait a little longer to see if the trend will continue, but the financial aid office thinks that would be imprudent. Such a low rate is not likely to become significantly lower, if at all.
Although the lower rate is the deciding factor for many students who decide to consolidate, there is an added benefit to waiting until a month or so before graduation. The six-month grace period that comes with the consolidated loan will allow a graduated senior to establish himself finically without having to worry about monthly loan payments, while students not graduating would lose the benefit of this grace period.
There are some disadvantages to consolidation, depending on the types of federal loans you have. If, for example, your two loans had different payment grace periods, you would be forced to accept the shorter one of the two. Also, there are only certain loans that may be consolidated into what the federal government calls a “federal direct consolidation loan.” To learn more about this option, go to http://loanconsolidation.ed.gov. This web site also provides further information on eligibility, loan applications, and interest rates, with the added benefit of an online calculator.
The Financial Aid office strongly advises that any student considering load consolidations first read this site to gather all information before seeking the office’s advice.