Evaluate Your Financial Position

College can be a hectic way of life with many ups and downs and unexpected challenges. However, for many young adults, the biggest shock comes after graduation, when you’re confronted with thousands of dollars in student loans that must be repaid.

Record low interest rates have made payments more manageable, but that is all changing. Federal student loan rates are adjusted every July 1st, based on rates for short-term Treasury bills, which have been rising.

If you are out of school and pay your student loans, you can shield yourself from higher rates by consolidating. You lock in the weighted average of all your loans up to the nearest one-eighth of 1 percent.

If you are not financially able to start paying off, or keep paying on, your loans, you are eligible for financial hardship deferments. If you consolidate your loans, you lose your ability to defer payments so make sure you are ready to make your monthly payment for 10 or more years before you consolidate.

How To Consolidate School Loans to Lower Your Interest

The general rule of thumb is that you should consolidate any Stafford loans that were disbursed before July 6, 2006. Graduates that consolidate during their grace period are eligible for a 0.6 percent interest rate reduction.

If you consolidate Perkins loans, you lose repayment benefits like loan forgiveness and a nine-month grace period, as well as subsidized interest during any deferment period. They also have a 5 percent fixed rate, so there is not an advantage to consolidating them.

When you consolidate, you can also stretch out the payment period for up to 30 years. By extending the term of the loan, you reduce your monthly payments, a useful feature for recent grads with little cash; but should consider paying it off way before then due to all of the extra interest you would be paying.

You can always increase your payments. There are no penalties for paying off your loan early. Not everyone can consolidate. Most lenders require a minimum of $7,500 in loans, and some set the minimum balance at $10,000.

Federal law prevents most borrowers who have already consolidated from doing so a second time, even if they locked in at a higher rate. And if all of your loans are with one lender, you’re required to consolidate with them unless they do not offer the service.

Shopping For A Loan Consolidator

Many lenders offer a quarter-point reduction for borrowers who agree to have payments automatically debited from their bank accounts. And some offer a reduction after you make 36 on-time payments.

You need to talk with several companies before making up your mind which company to go with. When discussing the terms of the loan, your research will pay off and you will be able to negotiate additional lower interest discounts if you have similar offers from other companies to compare.

Another good idea is to narrow down your choice by using a loan analyzer at Finaid.org. which will break down the discount rates in real dollars. This will help you to get a good idea of what each lender’s discount is worth over the long term.

This may seem like a lot of time and effort by doing all of this research, but it will pay off in the end. You will be paying this debt for many years and will want to know you have made the best decision.