Consolidating Student Loans – Requires Proper Timing

Consolidating student loans is an important step towards managing your debt and being able to pay off your student loans without the risk of default. When you consolidate loans the result is a simplified loan repayment and lower monthly payments. However, to manage those student loans, you must be able to consolidate your loans at an appropriate time. Fortunately, Congress has recently changed federal interest rates which favor student loan debt consolidation. Banks also have some of the lowest interest rates in history, creating a perfect time to consider consolidating your student loans.

Students who qualify for federal subsidized Stafford loans will see an interest rate that will decrease to 3.4% by this year, 2011. Congress also created help options for terms regarding loan repayments for students who meet income standards as part of the College Cost and Reeducation and Access Act. If a student can prove a partial financial hardship, the monthly loan payments are approximately 15% of discretionary income. The Act also allows qualifying students to have the remaining portions of their loans forgiven if they commit to and spend at least 10 years in a qualifying area of public service work. Some of these areas of public service include teaching, charity organizations, or certain health care services. This is only for loans directly funded by the federal government however. Students who consolidate the student loan debt from a Federal Family Education Loan Program (FFELP) into a direct loan consolidation program also qualify.

Thus, your current financial situation and your current lender may play a big part on when and how you choose to consolidate student loan debt. Be aware that consolidating loans might cause you to lose benefits offered by lenders, such as credit unions that contributed in the FFELP to offer student loans in 2007 and earlier. Yet the plus side of consolidating student loans may be a lower interest rate, offsetting the loss of benefits. Keep an eye out for interest rates and what the market is doing in order to get the best interest rates on federal consolidation loans. Timing good interest rates with consolidation is one of the more important steps you can take. These interest rates are fixed and typically defer to the average interest rates of the loans being consolidated.

You have a perfect environment for consolidating loans; interest rates are low and Congress has made concessions to help students with the student loan debt. However, pay attention to your timing when considering consolidating student loans, as current student regulation allows that a student may only consolidate loans once.