Saturday, June 17, 2006

Consolidate Student Loans Even If You've Consolidated Already

The rules for federal student loans can be complex. There are a couple of rules you may have run into:

1. You can't consolidate any given loan more than once (this hits you if you've ever consolidated in the past).

2. The minimum amount for loan consolidation is $7,500 (this hits you because the new loan you got last fall is surely less than that).

Well, yes and no. If you consolidated last year, and you're still in school, and you got a new loan last fall, then guess what? You can consolidate again. This gets around both rules, in the following way:

1. You can't consolidate last year's consolidation loan more than once by itself, but if you have other loans, you can combine them to produce a new loan. Yes, this is considered a new loan, so it gets around Rule 1.

2. The combined amount of both loans will certainly be more than $7,500. So this gets around Rule 2.

The interest rate on the new loan is the "blended" rate of both loans. Essentially, you keep paying the same "very low" interest rate on last year's consolidation, and the "still pretty low" interest rate on the latest loan.

So get going. You have only till June 30, or else your interest rate will jump right away, and will be adjusted every year from now on. That's a risk. If you consolidate, you lock in the low rates forever.

Where else can you borrow long-term money for 4.7% (student loan) or 6.1% (parent loan)? Even though those numbers are about 2% higher than last year, they're still very good.

The downside is that you have to start repayment right away, but these low interest rates are worth it. You can set up a graduated repayment schedule, where the payments are lower for the first few years and then increase. (But be sure to put aside money to pay them off!)

See my previous post for a few places to consolidate.

And don't forget the incentives. For instance, just about everyone offers a .25% discount on the interest rate if you set up repayment

MOHELA had a great incentive last year -- a rebate of up to $1,000 after only 15 on-time payments. They don't offer it this year, but this is a place you should check back on. They always have good incentives for the regular student loans, and they might bring back some better incentives for the consolidation loans next year.

But they do have a new 100% online application process. No mailing papers back and forth as you had to do last year. Others might have a similar system. In order to sign your promissory note, they look up your credit report in real time, and ask questions based on the information they find. If you answer correctly, they know it's you. Seems like a neat idea for identify verification.


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