Money Fix: consolidating student loans
During an event at the White House, President Barack Obama greets university and college students after urging Congress to pass legislation that would keep federal student loan rates from doubling during. (June 21, 2012) Credit: Getty Images
With student loan debt at $1 trillion and counting, consolidating your loans seems like a smart survival strategy. But proceed with caution. Understand what you're doing. If a student combines loans of different types and rates into one new consolidation loan, a weighted average calculation will establish the appropriate rate based on the current interest rates of the different loans being consolidated, explains Melville attorney Leslie Tayne, who specializes in debt resolution. Public and private loans can't be combined.
To consolidate or not? "Only consolidate loans if you're worried your interest rate will continue to rise or if you need to lengthen the period of the loan. If you only have a couple of years or a few thousand dollars to pay, it's probably more hassle than it's worth," says Dave Bendix, president of Bendix Financial in Garden City. Plus, switching to a new lender might eliminate benefits you earned like lower interest rates for on-time payments over the years.
Know the terms. Some banks may penalize you for paying your bill before it is due or paying more than the monthly payment and charge you a fee. Banks can have caps on the total amount of loans you can consolidate. Be sure you can consolidate all of your loans.
Shop around. Some credit unions offer student loan consolidation for private loans. Compare them to big banks. Wherever you go, "You shouldn't pay origination or any other fees to get a consolidation loan," says Bendix. Find a lender with the best terms for your situation.
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