Frequently Asked Questions (FAQ's)

Questions Concerning The Benefits and Drawbacks Of Student Loan Consolidation

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What is student loan consolidation?

Is now an especially good time to consolidate?

Yes. The borrower-friendly fixed-rate consolidation loan option (which may be as low as 2.875 percent for lenders who consolidate before July 1st) is likely to be replaced by a variable rate option in the near future. With interest rates on the rise and expected to be at least 1.5 percent higher after July 1st, graduating seniors with Federal Stafford Loans are strongly encouraged to consolidate before that date.

Are there any downsides to consolidation?

There is a small downside: Students who do not consolidate their Stafford loans will have a 6-month grace period after graduation; they will have until November 2006 to begin making payments. Students who consolidate, however, must begin making payments within 60 days of their consolidation. However, given the current economic climate, the benefits outweigh the drawbacks in most cases.

Should I consolidate now if I'm going to attend graduate school in the next few years?

Yes, given that interest rates are likely to rise, it is a good idea to lock in the low rates now on your current loans. Also, you will be able to defer your consolidation loan upon matriculation into graduate school just like you can your current loans.

Should I consolidate my Perkins Loan?

Probably not. At present the interest rate on your Perkins is fixed at 5% while the interest rate on your consolidation loan will be fixed at a rate that might be as low as 2.88%. However, you should also consider the following factors when determining when/if you choose to consolidate your Perkins Loan:

When consolidated, the Perkins Loan may lose its government subsidy and interest starts to accrue on the loan; the borrower is responsible for paying the accrued interest.

If you will be entering a job/career that qualifies for loan forgiveness (i.e. military, teaching, health professions, law enforcement, etc.), once your Perkins Loan is consolidated, it CANNOT be forgiven.

Is consolidation like refinancing a mortgage?

Yes, in the sense that you are reducing your interest rate and therefore your monthly payments. But there is at least one very important difference. With federal consolidation you retain your right to prepay without penalty. The ability to prepay without penalty is very important should you decide to lengthen the payment term when consolidating. But unlike a mortgage, you can only consolidate ONCE, unless you have another eligible federal student loan.

What are the repayment terms?

The repayment term on you current loans is 10 years. When you consolidate you may lengthen the term to up to 30 years. Of course, the longer the term the lower the monthly payment will be. However, the longer the term the more total interest you end up paying over the life of the loan - if you don't exercise your prepayment option at some point in the future.

May I still keep my 10-year term?

Yes, but you will not be able to extend to a longer repayment term once you have selected the shorter 10-year repayment term.

Why would I want to increase the loan term from 10 years to 20 or 30 years if it is just going to increase my total payments?

This is a personal decision that will depend on your specific circumstances. Many borrowers seek the lowest possible monthly payment as a short-term strategy. Once again there is comfort in knowing that you can always prepay without penalty when finances permit.

Why haven't I heard about consolidation from my current lender?

Your current lender prefers to keep the loans at a variable rate rather than convert it to a consolidation loan with a low fixed rate. You may have to follow up with them to make sure that your consolidation goes through by July 1st.

What if I don't know who currently holds my loans?

Find lender names/addresses in your repayment information for each loan or simply access www.loanlocator.org to access your student loans or your consolidation lender may be able to help you locate this information while you are on the phone with them. You may also ask your Financial Aid Officer.