The Right Time to consolidate student loans?

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Last week, yet another student loan lender announced it's not issuing any more new loans. Brazos Higher Education Service Corporation joined more than 30 other institutions that are pulling back from student lending because of the credit crunch and lower federal subsidies. Many have also stopped making consolidation loans, but for students who are still hoping to consolidate, SmartMoney.com reporter Anna Maria Andriotis says “Hang On”.

Source: Marketplace Money and smartmoney.com

Loan consolidation was first introduced in mid-1980 and was touted as a much-needed solution for those struggling to pay their debt from college. Borrowers could combine their Stafford and Plus loans into one payment and lock in the prevailing interest rates. However, times have changed, and consolidation is no longer a cheap and attractive option. Thanks to the declining federal funds rate and the phasing out of variable-rate loans, consolidating your student loans will actually cost you more over the lifetime of the loan. Eventually, consolidation will come back into fashion for variable-rate loans (rates should be much more attractive when they reset in July). But it will probably never again be the least-expensive solution for those with fixed-rate Loans.

Smartmoney.com suggests to hold onto variable-Rate Stafford & Plus loans for now. It further mentions that “Don't Consolidate Fixed-Rate Loans”

Please read the entire article on smartmoney.com, before you take any decision. We recommend you speak with a student loan specialist before you consolidate your loans.

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