If you ran up significant debts while paying for your college education, now may be the time to consider refinancing or consolidating your guaranteed student loans.
Unless you believe that loan rates will probably drop more, there are few disadvantages to such a move, and the advantages can be substantial.
What are the advantages? You may be able to lock in a reasonably low rate, reduce the number of checks you write each month and, if needed, extend repayment terms to lower your monthly outlay.
There are generally no fees associated with a loan consolidation. Refinancing a student loan--a separate proposition--can cost a maximum of $100 per loan. But some lenders, including Citibank in New York, waive fees on refinances too. (Not all student loan lenders do refinances, but most have consolidation programs.)
The disadvantage of a refinance or consolidation usually boils down to inconvenience. You must get the loan forms and fill them out. Although your bank is required to let you know about all the federal student loan consolidation and refinancing programs that it has available, banks don't generally actively market these programs. That's because they don't make much money--if any--on such deals.
Also, a few people's loans are at such low rates that a consolidation or refinance would not benefit them, industry experts say. However, anyone with student loans at rates above 9% should consider it.
The one qualification: You must owe at least $5,000 to qualify for federal loan consolidation programs. And some lenders, such as San Francisco-based BankAmerica, won't consolidate less than $10,000 in loans.
What makes consolidations and refinances such a good deal now is current interest rates.
Some student loan rates are at their lowest levels in five years. That helps those who have old, fixed-rate loans in the 12% to 14% range. They can refinance for variable rates, now set at 9.34%.
It is, of course, possible that interest charges on a variable rate loan will rise. So-called SLS and PLUS loans are repriced once annually at the 91-day Treasury bill rate plus 3.25 percentage points. However, rates on these loans are capped at 12%. In other words, if your old loan cost 12% or more, you can't lose with a refinance.
Meanwhile, it may also make sense to consolidate your loans now, said Elizabeth Ende, director of product management for Washington based Student Loan Marketing Assn., better known as Sallie Mae.
