Hurry up and consolidate your student loans!

There are just a few days left until the deadline to consolidate your student loans. If you're a graduate and haven't consolidated, you should do it now*; if you're in school, especially if you're a rising senior, it may also be a good idea. And since Congress ended the "single-lender rule" last week (as of June 16, 2006)-- which means that now borrowers are free to consolidate with any consolidator they want-- you have a ton of flexibility.

Last week I put on my "financial advisor" hat-- as I tend to do for my family-- and made some recommendations for my sister, class of 2007. Not only does consolidation get you the benefit of a 1.8% lower interest rate (2.4% if you lock in while in school or during your grace period), but a lot of places offer great incentives. Here's a long thread at FatWallet about it. However, a lot of consolidation services give me a really bad feeling; many of them are for-profit, have popped up overnight, have a lot of fine print, etc.

I ended up pointing my sister towards Student Lending Works, which is a non-profit organization connected to the state of Ohio. It gives you an 0.25% interest rate reduction for signing up for automatic payments from your bank account, and a 1.0% interest rate reduction if your first 36 payments. (That's a pretty standard incentive package.) If you're an Ohio resident or go to an Ohio school, it's an even better deal. There are actually a couple other incentive packages they offer, like earning a 3.3% credit off your loan balance after 30 on-time payments.

What will happen for my sister is that her loan will go into repayment, but she'll then qualify for an in-school deferment, so she won't have to pay until she graduates. She will lose the 6-month grace period after graduation, though.

So my sister will have $11,000 in loans consolidated with this service for a payment of about $80 a month. Then she'll have about another $5,000 for her senior year at a higher interest rate. I encouraged her to try to get the smallest payments possible on her consolidation loan, so that she can pay off the higher-interest loan faster.

If you still want to do this, you really have to hurry up... interest rates go up on Saturday, July 1 (and there are some other changes taking place that date), so all the paperwork has to be done by June 30. However, you may still have a chance; the consolidators really want your money, so they'll work hard to help you get it done in time.


*You should do it now if you've been planning to for a while but procrastinating; there are certainly good reasons not to consolidate, especially if you are in a line of work where you could get your loans forgiven, since consolidating can end your eligibility for that.