Consolidating student loans

Consolidating student loans -- Consolidating Student Loans Not Always Best Option, WHEN IT WAS first introduced in the mid-1980s, student loan consolidation was touted as a much-needed solution for those struggling to pay their debts from college. Borrowers could combine their Stafford and Plus loans into one payment and lock in the prevailing interest rate — typically, one lower than the average rates that they were previously paying on their other loans.

Times have changed, however, and consolidation is no longer the cheap and attractive option that it used to be. Thanks to the declining federal funds rate and the phasing out of variable-rate loans, consolidating your student loans now will actually cost you more over the lifetime of the loan. Eventually, consolidation will come back into fashion for variable-rate loans (rates should be much more attractive when they reset in July). But it will probably never again be the least-expensive solution for those with fixed-rate loans.

Here are some ways borrowers can ensure they're getting the best deal. (We've included a glossary of student loan terms to help you along the way.)

Don't forget that you have a month between the end of May when the base rate is set and July 1 when the new student loan rates go into effect to weigh your options. "If the impossible happened and...the T-bill rate was [rising], you'd...have the month of June to consolidate your loans with the old rates," says Sallie Mae spokesperson Martha Holler.

Bookmark, Share and Promote!