By Linda Stern
WASHINGTON - Consolidating your student loans isn't the no-brainer it used to be.
Last year at this time, money mavens were exhorting college students and recent graduates to run right out and refinance their loans before the big July 1 rate hike, which took the rates on those loans from the neighborhood of 4.7 percent to 6.54 percent. This year, rates are again going up, but only by a little -- to 6.62 percent.
Other factors about the way college loans are managed have also changed in ways that might make consolidation less attractive for some borrowers. So instead of racing to the bank, new grads should take some time to figure out whether consolidation works for them, and approach it carefully.
Here are some considerations.
-- What's your rate, and is it fixed? In a college loan consolidation, your original loans are paid off and bundled together in a new loan, much as a mortgage and a home equity line might be bundled together into a new mortgage with a home refinancing. The rate on the new loan is fixed. It's a weighted average of the interest rates of the loans being consolidated, rounded up to the nearest 0.125 percent. Students who graduated this spring are most likely to have a mix of variable and fixed-rate loans. Students who already did loan consolidations in the last two years while they were still in college, might already have a portfolio of low-cost fixed-rate loans and not find it worthwhile to reconsolidate just to get everything wrapped up into one loan, says Dan Thibeault, president of Graduate Leverage lenders in Waltham, Massachusetts.
-- Timing matters. New graduates will find some advantages in consolidating if they do it within six months of getting their diploma. They are in what's called a grace period that gives them a price break and six months to start repaying their loans. For these new graduates, the variable-rate loans are at 6.54 percent and the fixed-rate loan is at 6.8 percent. On July 1, their variable rate goes up to 6.62 percent. But when they move out of the grace period and start repayment, their loan rates will adjust up to 7.22 percent. By consolidating before then, they can lock in the lower rate. Typically, repayment starts immediately on consolidated loans, but borrowers can ask the lender to hold the loan package until the end of the 6-month grace period.
Source:
http://www.ibtimes.com/articles/20070625/student-loans.htm |
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