Q:  I will be graduating from college in the end of August and I’m a little worried about my student loans.  I have over eighty thousand dollars in four types of loans, from five different lenders. I am wondering if it makes sense to consolidate it all into one loan.  Is consolidation a good deal?  Can I even consolidate four types of loans into one? I do not want to be in debt forever, can I pay the loans off early?

A:  The answer to whether or not consolidation is a good idea for you largely depends on your particular situation.  Someone is eligible for consolidation once they are out of the six month grace period following graduation, have eligible loans of more than $7500 from more than one lender, and have not previously consolidated.  Consolidation can provide several benefits including locked in (usually lower) fixed interest rates, lower payments, the convenience of a single payment, and consolidated loans have flexible repayment options and no fees, charges, or prepayment penalties. There are also no credit checks or co-signers required.

The interest rate for your consolidated loan is calculated by averaging the interest rate of all the loans being consolidated and then rounding up to the next one-eighth of one percent. The maximum interest rate is 8.25 percent.  To figure your interest rate, visit www.loanconsolidation.ed.gov for an online calculator that will happily do the math.  Borrowers should consider consolidation if the new single loan has a lower interest rate than the existing loans or if the borrower is having trouble making the monthly payments.

Borrowers can consolidate:

• Direct Subsidized and Unsubsidized Loans
• Federal Subsidized and Unsubsidized Federal Stafford Loans
• Direct PLUS Loans and Federal PLUS Loans
• Direct Consolidation Loans and Federal Consolidation Loans
• Guaranteed Student Loans
• Federal Insured Student Loans
• Federal Supplemental Loans for Students
• Auxiliary Loans to Assist Students
• Federal Perkins Loans
• National Direct Student Loans
• National Defense Student Loans
• Health Education Assistance Loans
• Health Professions Student Loans
• Loans for Disadvantaged Students
• Nursing Student Loans

 According to Sallie Mae, the leading provider of student loans in the United States, consolidating student loans can reduce monthly payments by up to 54 percent. Remember, however, the only way to reduce the payment this much is to extend the repayment plan. You typically have 10 years to repay student loans, but depending on the amount you are consolidating, you can extend your repayment plan all the way up to 30 years. Remember that if you choose to extend your repayment term, it will take longer to pay off your overall debt and you will pay significantly more in interest over the longer term.

If you can at all afford it, Access to Assets suggests that you pay off your loans as soon as possible, thus limiting the amount of interest you pay.  There are no prepayment penalties, so you can always choose to pay off the loan early.  Some people even use graduation and birthday gifts as opportunities to pay down there student loans.  One particularly creative senior is planning to include student loan payoff coupons in her graduation announcements in the hope of retiring her student loan debt quickly through the graduation larges of her friends and family. 

Depending on your specific financial situation, you may want to check out the new Income-Based Repayment program.  IBR is a new payment option for federal student loans. It can help borrowers keep their loan payments affordable with payment caps based on their income and family size. For most eligible borrowers, IBR loan payments will be less than 10 percent of their income - and even smaller for borrowers with low earnings. IBR will also forgive remaining debt, if any, after 25 years of qualifying payments. IBR is available to federal student loan borrowers in both the Direct and Guaranteed (or FFEL) loan programs, and covers most types of federal loans made to students, but not those made to parents.

If your career will take you to government or non-profit employment, be sure to check out the new public service loan forgiveness option.  This program benefits federal student loan borrowers who work in certain kinds of jobs. It will forgive remaining debt after 10 years of eligible employment and qualifying loan payments. (During those 10 years, the IBR program can help keep payments affordable.  For more about IBR, public loan forgiveness and a calculator to see if you may qualify, visit http://www.ibrinfo.org/what.vp.html.
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Sources
http://www.ibrinfo.org/what.vp.html IBR Info on service of the project on student debt.
http://www.nextstudent.com/ Next student Incorporated