I graduated 6 months ago with several federal student loans combining more than 40K. Is it better for me to consolidate now or stay put? Will the fed cutting lending rates (now 3%) affect the interest rates that loan consolidators offer? Will i be offered either variable or fixed rates if i consolidate?
Best answer:
Answer by greentadpole
That's the 64 million dollar question. A consolidated loan pays off your existing student loans with variable interest rates and makes a new jumbo loan with a fixed rate.
Of course, the monthly payment for a consolidated loan will be lower, but you can also lower your current loan payments to cover interest for the first two or four years and still pay them off in 10 years instead of 30 with a consolidated.
Honestly, unless you are consolidating because you have multiple locations where you loans are serviced, I would hold off on consolidating until absolutely necessary.
The reason are deferments and forbearance. You only have 36 months of financial deferments available per loan. You only have 60 months of forbearance available on each loan. These delay payment if you ever needed some breathing room with payments.
So if you are unable to make payments because you can't find a job or the pay is too low, you can defer payments (and have the government pay the accruing interest on the subsidized loans) until you are able.
Consolidating the loans, you would limit yourself to only 36 months of financial hardship deferment over the 30 year repayment terms, and most consolidated are structured for the government NOT to pay interest while the payments are deferred.
To make my point, unless you are consolidating for the mere convenience of having all your loans in one location for payment, hold off on it until you need it.
The interest rates for student loans are determined July 1 of ever year. If you keep an eye on the rates, you can put your application in to secure the rate for consolidation.
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