Anyone that has student loans should consider consolidating them as soon as possible. As part of the Deficit Reduction Act passed in February by Congress, student loans will go from being variable rate to fixed beginning July 1, 2006. That means that the interest rates for Direct Loans and Stafford Loans (one of the more popular student loans because borrowers don’t have to show a financial need to get one) will increase from the current 4.75% to a fixed rate of 6.8% for Stafford loans and 7.9% for Direct Loans. If you take the initiative and act now to consolidate your loans instead of letting this deadline pass without action, you’ll likely save yourself several thousand dollars in interest payments. For example, a student currently has $20,000 in student loans and is able to consolidate them at 4.75% will save more than $5,100 in interest payments over the lifetime of the loans.
Parents of students will also have to pay higher rates under the new law. The rate for PLUS loans (Parent Loans for Undergraduate Students) will become a fixed rate of 8.5%. PLUS loans currently sit at just above 6% and are variable.
Probably the most difficult aspect of consolidating your student loans is knowing where exactly you got your loan. If the student loans came from Sallie Mae, Direct Loans or a banking institution, you need to contact the specific company you received the loans from. If you’re not sure, you can find out by contacting your college financial aid office or through the National Student Loan Data System.
The next step is taking the time to understand the implications of consolidating your loans. While it will make sense for most people, there can be times when it doesn’t. For example, you will want to look up the terms of forgiveness associated with your loans. Depending on the type of loans you have, consolidating them may invalidate the forgiveness provision.
Once you know where you have the school loans and that it makes sense to consolidate them, you need to contact the institution where you have the loans. If it is through a banking institution, contact the institution directly. If it is through Sallie Mae, you can go to Smart Loan and those with Direct Loans can got to their consolidation page
Taking the time now to consolidate your loans and not letting the July 1 deadline pass will save you hundreds of dollars at a minimum and likely thousands of dollars over the life of the loan.