If you or a loved one is paying off college loans, keep reading. You see, a deadline is looming. Interest rates for student loan programs are expected to rise significantly on July 1, and that means the ultimate cost to borrowers will be going up. You can avoid this fiscal trouble, though, by consolidating your student loans. In doing so, you'll be able to lock in the current rate, which is pretty low, historically speaking. You can also save several thousand dollars by consolidating.
Want some specifics? Here's the scoop from the College Loan Corporation:
"May 31 is rapidly approaching -- the date of the last Treasury auction in May, which sets the 91-day T-bill rate used to calculate the new interest rates on Stafford and PLUS loans. By all accounts, this will be the single biggest rate increase in the history of the student loan program. Based on the most recent T-bill auction, new rates could be as high as 6.99% for Stafford (student) loans and 7.79% for PLUS (parent) loans, up from rates as low as 4.5% for students and 6.1% for parents."
Those expected new rates would be the highest in six years, and our friends at the Fed haven't seemed inclined lately to lower interest rates. So rates may well keep rising in the years ahead. In fact, since this article was prepared, the Fed hiked interest rates again, and the CLC warned that the new student loan rates might end up even higher than initially projected.
If you can benefit from consolidating, there's absolutely no good reason not to do so. And don't wait until the last minute, either, since lenders will likely be swamped with applications and you might end up missing out on the opportunity.
Here are some things to know:
- If you've already consolidated your loans, you're out of luck.
- By consolidating, you'll likely lose the six-month grace period nestled between graduation and the commencement of repayment. But consolidating may still be well worth it. And though you lose the grace period, you still don't have to begin paying until you finish with school.
- While your monthly payment will probably be smaller after consolidation, your total cost may increase if you're significantly stretching out the payment period. In other words, if your loans have four years left on them, your consolidated loan may give you a fresh 10 to 30 years to pay. You can save a lot of money by paying off the new loan early. If you owe $110 per month, try to send in considerably more than that as often as you can.
- Private lenders can help you save even more by offering you even lower rates. Check with the likes of Sallie Mae (NYSE:SLM), Citigroup (NYSE:C), Wachovia (NYSE:WB), and Wells Fargo (NYSE:WFC).
- You may be able to have your payments automatically deducted from your bank account. This can help you avoid missing payments and can keep your credit report in tip-top shape. That's no small thing -- good credit can help you buy a car or home and save money. Learn how to check your credit report and why you should want to.
- Get details. Ask about any penalties involved and the repayment terms, among other things.
Before taking any action, learn more from our friends at the U.S. Department of Education and FinAid.org, who offer many important additional details.
Here are some Fool articles on student loans and paying for college:
You'll find lots of additional tips on "529 plans" and on paying for college when you visit our College Savings Center. Our Paying for College discussion board is a good place to ask questions you may have, and our book The Motley Fool's Guide to Paying for School, by Robert Brokamp, is also a handy resource.
Finally, consider sending any teens you care about to our Teens & Their Money nook. Alternatively, consider giving them a copy of our Motley Fool Investment Guide for Teens book.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
