5 Incentives to Consolidate Student Loans

Each year on July 1st, student loan rates change based on the government’s established rate calculation. For years this date has come and gone without alarm, but 2006 marks one of the largest increases in history. Not only will interest rates rise sharply, but many benefits that borrowers have grown to count on will also now be eliminated.

Here we detail 5 money-saving reasons to consolidate student loans by the 1st of July:

Reason #1: Interest rate hikes on student loans

On July 1st, 2006, the current variable rate for existing Stafford Loans will increase from 4.7% to 6.54% during deferment and grace periods, and increase from 5.3% to 7.14% in repayment. PLUS loans will shoot skyward from 6.1% to 7.94%. By consolidating student loans before July 1st, borrowers have the opportunity to lock into today’s current rate before the hike. All it takes is for you to apply online by June 30th. If you miss the July deadline, the cost could be substantial. You could end up with a rate that is 4% higher than what you could consolidate at today, and pay $15,000 or more in extra interest costs.

Reason #2: Lower monthly payments

Applying for a federal consolidation loan with ScholarPoint can lower your monthly payment by up to 63%. For example, a borrower with $50,000 in student loan debt can consolidate and reduce the monthly loan payment from $537 to $198. This leaves more money in your pocket and eases the financial impact of student loans. Consolidation gives students and parents much needed freedom and flexibility when making financial decisions.

Reason #3: The end of student loan consolidation while still in school

Previously, students could consolidate student loans while still in school. As part of the new legislation going into effect on July 1st, students will no longer have this option. This means that students will either have to consolidate student loans at whatever the rates are when they graduate, or continue to pay the government’s fluctuating variable interest rates until they feel the rate is right to lock in. 2006 graduates who are currently in their post graduation grace period should move quickly to consolidate student loans before July to lock in the lower 2005-2006 interest rates.

Reason #4: No more spousal student loan consolidation

Many married couples have enjoyed the opportunity to consolidate student loans together into one low monthly payment. Another of the July 1st changes will be to cut this option from the list of student loan benefits. Couples who miss the July 1st deadline will still be able to consolidate student loans individually and save up to 60% on their current monthly payments. But, they would be consolidating at a much higher rate.

Reason #5: Shopping for a more favorable student loan consolidation lender will be more difficult

Up until now, borrowers have had the option to shop around for a lender with which to consolidate student loans, even if they had previously consolidated. With the new legislative changes, borrowers won’t be able to switch lenders once they’ve already consolidated except in specific circumstances. Unless one or more of your student loans were left out of your original consolidation or if your lender doesn’t offer an income sensitive repayment plan, you must remain with your current lender under the new laws.

posted by Z3ede3 at 7:52 PM