Time To Save On Student Loans

Ray Martin Explains How To Lock In A Low Rate Now

(CBS) 
Who Should and Should not Consolidate Loans?
Not all student loans should be consolidated. If you consolidate a Perkins loan, you lose the benefit of government loan-forgiveness for borrowers who later enter qualifying teaching, law enforcement or military service.

It was widely believed that loan consolidation was not allowed for active students whose loans are in a grace period, where payments are not required until six months after graduation. According to guidance released by the Department of Education on May 16, active students can apply to consolidate their existing loans, which then can be placed on in-school deferment status. Given the looming increase in the interest rate that applies to loans consolidated after June, students who are still enrolled may want to consider this option. Many lenders will allow active students to consolidate their existing loans and then place the consolidated loan on deferment, with payments to begin immediately after graduation. These deferred loans will carry a deferment interest rate which will be a higher rate, but still likely to be lower than future rates for consolidated loans.

Loan consolidation may not make sense for all actively enrolled students. Many lenders require a minimum total loan balance of $7,500 for consolidating loans, and students will lose the ability to consolidate all of their student loans into one loan after graduation. Students also will lose the six-month grace period for repaying loans after graduation, as payments on consolidated and deferred loan will be required to be made immediately after graduation.

But recent grads who have loans in a grace period have a special opportunity: those who consolidate their loans during the grace period can lock in an even lower fixed rate of 2.77 percent (rounded up) versus 3.37 percent. Some loan providers, such as Sallie Mae, will allow you to apply for consolidation while in a grace period and delay processing your loans until the end of your grace period. With others, you can wait until near the end of the grace period to apply and still get the lower rate.

Why Now?
With interest rates higher, it’s a certainty that rates for consolidation loans will be higher when reset this summer.

Also, Congress has legislation that proposes to end the fixed-rate loan consolidation program as it exists today. The legislation proposes that all loans in the future have variable rates so that all current and former students pay the same interest rates on their loans. Advocates of the proposal say that it’s unfair that students, who are lucky enough to graduate when interest rates are low, get to consolidate and lock in low rates that are subsidized with government funds while tomorrow's students are forced to borrow at variable rates that rise in the future.