Graduates on short deadline to consolidate their loans

SAN DIEGO – Students completing college are faced with repaying their student loans, and as if that’s not enough, on July 1 interest rates for student loans are expected to increase by 35 to 40 percent.

Students who consolidate prior to this deadline can lock in the current rates, the lowest in 40 years.

By acting fast, a graduating student may be able to receive a fixed rate as low as 2.875 percent.

“These are record low rates that we may never see again, and time is running out,” says Mary Montiel of Collegiate Funding in San Diego.

Students already in repayment may receive a fixed rate as low as 3.37 percent.

Additionally, there are no fees or credit checks associated with consolidation. A student with debt of $20,000 can save as much as $4,500 over the life of a loan in a 20-year period at current rates.

Rates are based on the 91-day T-bill auction that occurs each May. Current T-bill prices indicate rates may rise as much as 1¾ percent. Students exiting school and parents with federal parent loans have a short window of opportunity to realize these savings. They must consolidate their loans prior to July 1to receive these rates.

Many students prefer to wait until their six-month grace period is up, but this year that will be a costly mistake due to the expected rate increase.

“Students need to act fast this year and consolidate immediately when they exit school,” says Montiel. Students may put their consolidated loan into forbearance or deferment if they are unemployed and unable to make the payment.

Parents using the Federal PLUS program face the same increases.

Current Plus rates are 4.17 percent but could increase to 5.8 percent or higher July 1.

Some lenders offer incentives that further reduce the fixed rate.

“Our incentive plan can reduce the interest rate as low as 1.375 percent. Borrowers are given an additional 1 percent reduction after making 36 on time payments and an immediate half-percent reduction for automatic withdrawal,” says Montiel.

Interest rates on federal student loans are at a variable interest rate prior to consolidation. This rate adjusts every July and remains for one year. When a student consolidates his loans, two things happen:

First and foremost, the interest rate becomes a fixed rate and is based on the current rates at the time of consolidation.

Secondly, the term is extended. Student loans are on a 10-year term. Through consolidation the term is extended up to 30 years, depending on the amount of the loans.