Friday we took a look at whether you should consolidate your Perkins loans, and found that it may not be the best option. But Stafford loans are another type of Federal student loan eligible for consolidation, and it may actually be in your best interest to take advantage of student loan consolidation for Stafford loans.
Consolidate to a lower interest rate
If you are looking to lock in a low interest rate, it might be a good idea to consolidate your Stafford loans, if they were issued after July 1, 2006, and you are still in your grace period (you do not have to start paying back your student loans until six months after graduation). Prior to July 1, 2006, rates were variable and you will find that if you did not consolidate then, they went up. Interest rates are about where they were last year at this time, and are unlikely to change. And, because they are inching closer to the maximum allowed on Federal student loans, they really can’t go much higher. If you are in your grace period, however, the interest rate is probably right around 0.6 points lower. You might consider consolidating now, even if it means losing some of your grace period time. CNN Money gives you a way around this, however:
But if you apply for consolidation before July 1, a lot of lenders can
set it up so that the clock on that 60 days doesn’t start until close
to the last two months of your grace period…
Consolidate Stafford loans for lower payments
Another reason to consolidate your Stafford loans is if you want a lower payment. You can usually stretch the payments from 10 years to 25 years through consodlidation. However, this will greatly increase the amount of money that you pay in interest charges over the life of your loan, as CNN Money explains:
A 30-year term is even more expensive. Say you have $20,000 in
fixed-rate Stafford loans. Asher notes that you’ll pay $7,619 in
interest on them over 10 years. But if you consolidate and extend the
repayment term to 30 years, you’ll lower your monthly payment by $100
but you’ll end up paying $26,935 in interest.
I condolidated my student loans to take advantage of the lower rates before they went up in July 2005. However, I pay more than the payment amount in order to retire them faster and pay less interest. You can also look for student loan lenders that offer special interest rate reductions. Some offer a 0.5 percentage point reduction if you sign up for automatic withdrawal. And after I complete 36 on time payments (sure to happen, thanks to automatic withdrawal), I will receive another full percentage point reduction to my rate.