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Don't miss chance to consolidate and save

By HELEN HUNTLEY
Published June 29, 2006

Got a student loan? Time is about to run out on a big-money-saving opportunity for borrowers with federal education loans. Friday is the last day to apply for consolidation and take advantage of low fixed rates. Here are answers to some common questions about loan consolidation:

Who is eligible to apply?

Borrowers with at least one Stafford student loan or PLUS parent loan that has not been consolidated previously.

Why should I apply?

Because if you don't, the interest rate on your loan will increase nearly 2 full percentage points. The rate could go even higher in the future, since interest rates on these loans adjust each year based on current market rates.

Are there any other advantages to consolidation?

You can extend the term of your loan, which means smaller monthly payments. Depending on how much you've borrowed, the term could be as long as 30 years. Of course, that could mean you might be paying back your loans and trying to help your children pay for college at the same time.

What if I'm still in school? I can't afford to start making payments.

You can consolidate your outstanding loans, then defer repayment as long as you are enrolled at least half time. Your loan for the 2006-07 school year will not be part of the consolidation.

I have a subsidized Stafford loan. Will I lose my subsidy if I consolidate?

No.

Can I consolidate with any lender?

Yes, if you are out of school. If you are still in school, your current lender may prevent you from going to another company.

What will my interest rate be if I consolidate?

It depends on how long you've been out of school and whether you are rolling previously consolidated loans into the package. For a new graduate, the base consolidation rate is 4.75 percent. On a PLUS loan, the rate is 6.125 percent.

Does it make any difference which lender I use?

All lenders have the same base rate, but they compete on incentives. For example, many lenders offer a quarter-point and some a half-point reduction in rates if you make payments by automatic debit. Many offer additional interest rate reductions and some even give cash rebates after you make a certain number of on-time payments. Ideally, you want to deal with a lender that has a reputation for good service.

How do I find a lender to consolidate?

Ask your current lender what kind of a deal it will offer you. For more options, type the words "student loan consolidation" into an Internet search engine.

I'm still in school. What will the rate be on my loans for next year?

New loans will be at fixed rates of 6.8 percent for Stafford student loans and 8.5 percent for PLUS parent loans.

I have private student loans. Can I consolidate them?

Yes, but you'll need to do it separately from your federal education loans, and the rates will be higher and vary by lender. The Friday deadline does not apply to private loans

- HELEN HUNTLEY, Times personal finance editor

[Last modified June 29, 2006, 05:38:09]