| Most graduates don't realize until it's too late that there | | | | Don't forget to factor in opportunity costs |
| is a loophole in the federal student loan consolidation | | | | Though it would be ideal to have no debt at all, this |
| program that allows borrowers to lock in an interest | | | | simply isn't an option for most people. New grads face |
| rate that is 0.60% lower than standard repayment | | | | a steep uphill battle. At this stage in life, graduates are |
| rates. Each year's graduating class has a unique | | | | juggling cash between buying homes, launching |
| opportunity to take advantage of this loophole before it | | | | businesses, and starting a family. While a borrower |
| closes after the 6th month following their graduation. | | | | could pay down their college loan in 10 years by paying |
| For students in the class of 2006, November marks | | | | $700 a month, rather than over 30 years at $258 a |
| the last opportunity to lock in their current low interest | | | | month, is it worth the opportunity cost? |
| rate before it increases. | | | | For those earning enough to do both, the choice to |
| Why consolidating during the grace period makes such | | | | pay off college loans sooner might be more beneficial. |
| an impact on savings | | | | But others who are forced to make a choice about |
| The reason borrowers are able to save so much by | | | | how to leverage a tight income must decide what is in |
| consolidating college loans during the grace period has | | | | line with their ultimate financial goals. Instead of being |
| a two-part answer. First, the interest on a college loan | | | | forced to save around the student loan repayment, |
| during its six month grace period is up to 0.60% lower | | | | borrowers can choose a feasible monthly repayment |
| than when the loan enters repayment status. Add to | | | | amount, and then determine the number of years |
| this the current federal student loan consolidation rate | | | | required to repay the loan at that amount using a |
| guidelines that dictate the rate of the new consolidated | | | | student loan consolidation calculator. |
| loan using a weighted average of the current loan's | | | | How to Save Even More with the PLUS Loan |
| interest rates. Once college loans are consolidated, the | | | | Consolidation Loophole |
| lower repayment rate is fixed for the entire 10 to 30 | | | | PLUS loans, once only for parents of undergraduate |
| year repayment period. | | | | students, are now available for graduate students to |
| How student loan consolidation helps borrowers | | | | fund their own educations as a result of the Higher |
| If you miss the deadline, there are still ways to save | | | | Education Reconciliation Act July 1st changes. PLUS |
| with student loan consolidation. One of the benefits | | | | loans experienced a rate hike in July, from 6.1% to |
| that many people say they enjoy most about | | | | 8.5% but there is a silver lining to this cloud through a |
| consolidating student loans, is the ability to extend the | | | | loophole in the Act. |
| repayment term from the standard 10 year period, up | | | | Another one of the July 1st changes dictated that all |
| to as many as 30 years. By lengthening the | | | | consolidated loans would have a cap of 8.25%, a |
| repayment period, monthly payments are dramatically | | | | quarter of a percent lower than the rate of the PLUS |
| reduced. | | | | loan. This means that any parent or graduate that has |
| When payments are spread out over a longer period | | | | a PLUS loan will lower their interest rate, just by |
| of time, students will pay more in interest over the | | | | consolidating. PLUS loan borrowers can choose to |
| lifetime of the loan. But many students say that without | | | | extend the repayment period like any other federal |
| this option, making the monthly payments on their | | | | student loan borrower to lower the monthly payment, |
| student loans would be a larger burden than they could | | | | but with this loophole, even if they make no changes to |
| shoulder. | | | | the 10 year repayment period, they will still save |
| By consolidating student loans and extending the | | | | money just by consolidating. |
| repayment period, borrowers can keep monthly | | | | Just as before the changes, the process of |
| payments low during the early years of their budding | | | | consolidating federal loans is still free and requires no |
| career. Should they choose to do so, borrowers can | | | | credit checks and no collateral. As always, federal |
| contribute larger payments as their salaries increase in | | | | student loan consolidation neatly wraps up all |
| the future. Most lenders don't charge any pre-payment | | | | outstanding federal loans tied together with one fixed |
| penalties, meaning the choice about how long it will | | | | rate. So while the rate increase made big news last |
| take to pay back loans is entirely up to the borrower, | | | | July, there are still plenty of benefits and ways to save |
| no matter how many years they spread out their | | | | money by consolidating student loans. |
| consolidated loan. | | | | |