Mellody Hobson: Consolidating Student Loans

Student loan rates will jump 2 percent on July 1, so the time to consolidate is now!

June 30 marks the deadline for college graduates to lock in the lowest student loan interest rates on record. According to FinAid, two-thirds of undergraduate students graduate with some debt. In fact, the average federal student loan debt is about $17,000 (Stafford and Perkins Loans), and $20,000 when PLUS Loans are included.

What is consolidation?

Loan consolidation refers to combining multiple educational loans into a single, larger loan which a student pays off each month.

Who should you call?

Before you consolidate, you must take inventory of all of your outstanding loans. The best way to do this is to log on to the National Student Clearinghouse Web site (www.nslc.org). You can consolidate your loans at a bank or credit union that is a member of the Federal Family Education Loan Program.

Alternately, you can go directly to the U.S. Department of Education (www.loanconsolidation.ed.gov) or call 1-800-557-7395. If your loans are with a single lender, you must consolidate with that bank or credit union. What you should not do is respond to phone solicitations urging you to consolidate your loans. Keep in mind, there are never any fees associated with consolidation, so if the lender requires you to pay an application or credit check fee, find another lender.

What are the rules of consolidation?

Most federal loans can be consolidated. Students can consolidate while still in school, during the six-month grace period immediately following graduation or during the repayment period. Keep in mind, interest rates are lower when you consolidate in-school or during your grace period.

To qualify while still in school, a student needs to request early repayment status from the lender. Doing so locks in the lower rate but also wipes out your future grace period. However, students can still defer payments by then requesting an in-school deferment until after graduation.