Just as hurricane season comes every year, so too does the quandary of whether students and their parents should consolidate student loans.

This year the answer is fairly easy for most borrowers: Yes.
The deadline for consolidating to get the best interest rates is Friday. And you don’t want to wait until then.

The interest rate for the one-year period beginning July 1 will be 6.54 percent for borrowers who are in school or who are in a grace or deferment status. Loans for borrowers in repayment will be set at 7.14 percent.

Although lenders make it seem as if consolidation is a no-brainer, I’ve received e-mails from parents and students who need clarification.

For example, there’s the dad whose daughter told him she can’t consolidate because she’s in deferment.
Pop, she’s wrong. If you have received an in-school deferment (an authorized time period when your loan payments are not due), you can consolidate while in school and ask for a deferment. The loan payment begins either when you graduate or stop going to school at least part time.
Recent changes in federal legislation will prohibit in-school borrowers from consolidating beginning July 1.

I also should note that federal student loans first disbursed on or after July 1 now will have a fixed interest rate of 6.8 percent for the life of the loan. This fixed rate will apply to both in-school/grace and repayment periods.

Another reader didn’t think he could consolidate because he has only one Stafford loan.
Not true. If you only have one loan and you want to consolidate to take advantage of the lower rate before July 1, you can. However, you have to consolidate with the lender of that single loan. If you have federal student loans with more than one lender, you can choose to consolidate with any lender.

We hope the single-lender rule will be changing soon.
If you already have consolidated your loans, you can’t do it again unless you have a new federal student loan or a loan that was not included in the original consolidation.
Another question from a concerned mama: “My daughter has loans from getting her master’s in special education K-12. She was told that if she consolidated she would be ineligible for the (loan) payback program that is available if she were to work in a Title I district. Do you have information about that?”

It just may be that in this circumstance, consolidation would not be in this young woman’s best interest. There are programs that will forgive student loans and interest if the borrower works in certain elementary and secondary school districts that serve low-income families. But this benefit could be lost if you consolidate.

If you have a Perkins loan, which carries a low fixed-interest rate of 5 percent, you may be ineligible for loan cancellation benefits if you consolidate with other federal loans. This type of loan can offer loan forgiveness to grads employed in certain fields, such as teaching or social work.

Washington Post Writers Group

This entry was posted by Taman Siswa on Sunday, June 25, 2006 at 4:00 pm and is filed under Education News, Student Loan. Tags: Education News, Loans, Student, Student Loan, . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.