consolidating student loan
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Students Rush to Refinance as Deadline Approaches
With the cost of consolidating student loans set to spike on July 1, college students and recent graduates are rushing to refinance their debt, and consolidation companies are scrambling for their business.
In recent weeks, lenders have bombarded borrowers with letters and e-mail messages exhorting them to lock in current interest rates before they rise by nearly two percentage points, to 7.14 percent. At least one lender is sending students checks worth hundreds of dollars that they can cash when they make their first payment on a consolidation loan.
But the lenders' aggressive and sometimes misleading sales pitches make many financial-aid advisers uneasy. They say they have been inundated with calls from worried students who have received offers that are disguised as overdue bills or official government correspondence.
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Students pressed to consolidate their loans
Student loan interest rates will go up almost 2 percent on July 1, but consolidating now can lock in the current rate.
By consolidating student loans now, the interest rate will turn from a variable rate to a fixed rate, saving students thousands in interest over the life of the loan. Consolidation does stretch out the life of the loan, but decreases the monthly payments.
The interest rate on Federal Stafford Loans is 5.3 percent, according to Staci Schiller of Wells Fargo. The increase will bring it to 7.14 percent.
Loans taken out after July 1 will also be at fixed interest rates, instead of variable rates.
"I need to consolidate," said Beth Arnason, UND student. "I didn't know that it would lock in the lower interest rate. I will definitely look into it."
But when students consolidate their loans, they lose their six-month grace period after finishing school.