Should I consolidate my student loans now before July? What are the benefits and what are the disadvantages?

Answer 1

At present, the biggest advantage is the ability to lock in a rate that, in a few weeks, will increase by almost 2%.

The biggest downside to consolidating is that you will lose your 6-month grace period (9 months for Perkins), so your first payment will probably be due within a month after you complete the application. You will, however, retain the ability to apply for deferments and forbearances. Even better, the subsidized portion of your Stafford loans will retain their interest subsidy (meaning that, even if you consolidate your Subsidized Stafford loans with other unsubsidized loans, the government will continue to pay interest on those Sub loans any time that you are in school or in-grace -- a great "perk" if you plan on going to Grad. school).

If you decide to go to graduate school, your consolidation loan will be eligible for an in-school deferment (just as your Stafford and/or Perkins loans would be if you didn't consolidate).

It gets a little complicated, I know. All things considered, if you think you can handle losing your grace period, consolidating is probably your best move. 2% in interest can really add up over 10-30 years... (And no one yet knows that rates will be come July 2007, so you might end up saving more than 2%.)

One final note: if you have a Perkins Loan, you can consolidate it with your other loans. However, Perkins Loans carry additional loan cancellation/forgiveness benefits which can be lost if you consolidate. So, read up on these and if you think you qualify (if you might become a teacher, cop, child care provider, etc.), leave the Perkins out of the consolidation.

Some examples:

Say you have $10,000 in Stafford Loans. Your current Stafford interest rate is 4.7% and will increase to 6.54% in July. Once your 6-month grace period is up, you will begin repayment and your rate will increase to 7.14% (and if you don't consolidate, your rate will continue to change every July 1st). Using 7.14% as a sample rate... $10,000 at 7.14%, over 10 years adds up to a monthly payment of $116 and an overall cost of $14,020

If you consolidate this month, you can "lock in" the current rate (4.7% rounded up to the nearest 1/8th of a percent equals a consolidation rate of 4.75%, sometimes lower). $10,000 at 4.75% over 15 years (you get longer to repay when you consolidate) will amount to a monthly payment of $78 and an overall cost of $14,001.

So, from a financial standpoint, you need to determine if these savings are worth losing your grace period.

Answer 2

Yes, with the pending raise in interest rates its best to do it now. You really dont know what you might endup with. I'm still in college and I consolidated all my loans to lock in the current interest rate which is 2. something. So research some more and do it as soon as possible.

Answer 3

Yes, because the interest rate is going to go up and then you'll end up paying more. I haven't experienced any down sides yet from consolidation itself.