Consolidate your student loans before July 1st!

[Matt]

there's supposed to be a rate hike of 1.84% this July 1st. if you consolidate, you can lock in your current rate and save some dough.

i don't know too much about consolidation, besides everyone recommends it, if you have multiple loans.

[DrRay11]

Thanks for the heads up, Matt...

[WTFchris]

Consolidation will not save you any money, ever. Consolidating get's you a smaller payment but they either tack on interest, or you end up paying it because the consolidation with a lower payment increases the length of the payments...thus charging you more interest in the long haul. If they didn't charge you more, they'd be out of business.

IMO, never consolidate ANYTHING, unless you are hard up for money and have to. That's the only good time to do it. It's better to consolidate than to miss payments, that is for sure.

When I got out of college, and I had to pick my payment plan, I picked the max amount. The difference wasn't that much either (I pay 87 bucks a month instead of the 50 that was the low amount). over the course of the loan, it saves me 3 grand, and 30 bucks a month is a small price to pay for that kind of savings.

Matt is partially right though. IF you plan to consolidate, and IF the rate will increase...then it will save you money. But consolidation itself will not. I had two loans myself, and just set up auto payments for both. Then it's not really a pain at all.

[Fool]

That's not correct (IMO). Money lenders make their profit off of the interest you pay, not off you repaying the loan amount. Thus, a new lender makes money by getting you to pay them the interest rather than someone else. They don't need to get you to fork over more money to make a profit, they just pay off the original loan amount (in some cases its the loan amount + some depending on the loan) and then you pay them that amount and the interest you both agree to. The incentive to pay this new lender is usually one or both of two things, either they agree to reduce your monthly payment (this can raise the total amount and/or increase the number of payments you pay overall and in those cases Chris is right in his warning that you shouldn't do it if you don't need to), or they reduce the total you will pay by offering a lower interest rate (in this case consolidating is a good idea as its simply paying less for the money you've already borrowed).

There are things to watch out for, like pre-payment penalties on your original loans (this applies more in general than with student loans since those typically don't carry pre-payment penalties) but consolidating high interest loans (federal student loans or credit cards for example) into one or fewer lower interest loans can and does lessen the amount you have to repay. (Though, you have to have the will power not to create more dept for yourself for any of it to actually help you.)

[WTFchris]

You are right. An exception to my post is if the offer you a lower interest rate, without adding extra fees so that your total money paid is lower. If so, by all means. I guess the moral of the story is no method is %100 right or wrong. Just get all the numbers straight before doing/not doing anything.

[Matt]

the student loan consolidation standard has been to take a weighted average. the formula was pretty standard w/ all the companies i called.

my two loans were 6.1% and 5.3%. the rate i got was 5.5%.