Closing Windows for Consolidating Student Debt?

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Within the debthelp.com series of articles on student loans, you will find great advice about maximizing loan benefits and affording college. Personally, I am vitally interested in what will happen after college, and that is the focus of this particular article.

It would be incredibly useful for students if more financial planning sessions were offered throughout their college careers, but for now learning about student debt consolidation is about as close as we can come.

As of late, private companies have taken the initiative in educating students about college debt. The downside is that, while the government is failing to better inform students, businesses are all too quick to sell something to students.

In 2006, for example, students who wished to consolidate their loans rushed to meet the Congressional deadline of June 30, so that they could secure many of the most favorable loan consolidation terms. As is so often the case when it comes to changes in student loan law, there is more than meets the eye about the June 2006 deadline.

In fact, many students who, for one reason or another, did not meet the June 30 deadline may still benefit. There are at least two things to consider in this case: (1) if you ‘substantially’ started an application with a consolidator before the deadline, this may be sufficient to lock-in the favorable terms, and (2) consolidation interest rates will settle down as the interest rate markets settle down.

Within the debthelp.com library, there is a great article about changes in student loan consolidation law that you also will want to read. In terms of comparing consolidation benefits before and after 06/30/06, consolidation before entails a fixed interest rate set as low as 4.75% (or even lower through special premium offers), while consolidation after involves a variable interest rate.

This does not mean that if you consolidated after the deadline that you will not be able to find lower rates on negotiable offers. It does mean, however, that you will need to be very careful about your consolidation to secure a low rate. Confirm with your consolidator that a low rate is not just a low introductory rate that will increase in the future.

Students who did consolidate by 06/30/06 may be shocked to find that they ended up paying more interest afterwards than they did beforehand! This is because many student loans have subsidized low rates, or are based on the historically low interest of the last ten years.

The Perkins Loans, for example, often are left unconsolidated because the rates are lower than any consolidator will touch. Stafford loans, too, have been below 5% in recent years. Be careful when consolidating your loans in the midst of changing interest rates, because you may not get the best deal by following the wave of panic into consolidation.

The 06/30/06 deadline was not necessarily a “drop dead” deadline. This depends on what benefit you really need for your situation (in fact, there actually were some negative changes included in the bill that hurt students). If you missed the deadline, rest assured that another opportunity will come around when interest rates will do their dance again.

Great Deals

Many consolidation companies will offer seemingly great deals in an effort to win your business. Check each consolidator’s reputation. Check to see if other students have posted any complaints about the consolidator on the internet. Many deals that sound irresistible are not quite what they seem.

• LOANS that can be consolidated are: FFELP (Stafford, PLUS, SLS, Consolidation), and FDSL (Stafford, PLUS, Consolidation)

• LOANS that cannot be consolidated are: private commercial lender loans and study program loans.

Finally, beware of consolidators who promise you a cash gift for signing up. Now, does that really make sense? The payment almost certainly will never offset an increase in your interest rate.

Changes in lending laws that affect your rights and the interest rates associated with consolidation have happened before, and they will happen again. Browse mailings from lenders and search for a consolidation loan if you choose, but always rely on the tried and true advice, “If it looks too good to be true, then it probably is".