Student Loan & The Federal Loan Consolidation Program

On February 8, 2006, President Bush signed into law a budget reconciliation bill that will greatly impact your student loans as a student or a graduate. The interest rate on new student loans (Federal Stafford Loans) taken out after July 1, 2006 will be at a fixed rate of 6.8%. Student loans taken out prior to that date will remain at a variable rate.

The good news is that origination fees on student loans are scheduled to phase out over the next several years, which will mean that there will be fewer fees applied to all student loans. Additionally, if your pursuing a graduate degree, a new PLUS Loan initiative will allow the graduate and professional student to take advantage of PLUS funds. This will effectively enable the student loan borrower to cover the total cost of attendance with a federally guaranteed, low-interest loan instead of Alternative Loans, which are typically more costly.

Students nearing their graduation are generally thinking about consolidating their student loans through the Federal Loan Consolidation Program to lower the monthly payments by up to 50%. The tips provided below will help student loan borrowers to deal with questions concerning graduation and how to handle their student loans.

The average new student loan graduate will owe more than $220 in student loan payments each month. Even if the student loan borrower has not received their first student loan payment billing yet, the student loan borrower should keep in mind that there are important student loan borrower deadlines approaching quickly. Student loan borrowers can save hundreds or thousands of dollars in interest by consolidating their student loans together now because the interest rate on your student loans will increase on July 01, 2006.

Because the student loan borrower rate is currently variable and can increase to as high as 8.25%, it is strongly recommended that you lock your student loan rates now (you can lock in as low as 4.5%*).  As the pattern of student loan interest rates rising continues, the student loan rate AND monthly payment obligation will likely go up if you do not consolidate your student loan rate before July 1st.  How the student manages their student loans can have a huge impact on the students financial future.

Following these simple tips will make it easier.

Tip #1: Don't let your student loan interest rate go up. Currently student loan interest rates are variable - they change the variable interest rates every July 1st. Student loan borrowers can permanently lock in their student loan interest rate by consolidating the student loan into a locked interest rate.

Tip #2: Use automatic student loan payments. Most lenders offer a reduced interest rate when the student loan payments are automatically deducted from the students checking or savings account. This can add up to a nice long term savings. In addition, the student will not be required to remember when to write out the student loan check each month, and your student loan payments will always be on time which saves the student from late student loan payment penalties.

Tip #3: Don't get behind on your student loan payments. If  the student is having trouble making the student loan payments, the student should immediately contact their student loan financial service to find out if they are eligible for deferment or forbearance. Just as with any other credit loans, late student loan payments can and will negatively affect your credit rating.

Tip #4: Choose the best student loan payment option. Multiple payment options are available to student loan borrowers who consolidate their student loan. A payment plan that fits the student loan borrower current financial situation will help them significantly in keeping up with their student loan payment obligations. Keeping the student loan up to date will allow the student loan borrower to switch plans easily if they discover a better student loan interest rate.

Tip #5: Get cash back from your student loans. A student loan lender service will often offer student loan borrowers incentives to make their student loan payments on time for a specified time period. For example, CLC® offers borrowers up to $2,000 cash back after they make nine consecutive payments on time.