Smart College Savings

Student Loan Consolidation Tips

Jay MacDonald at Bankrate is offering some smart tips to consolidate your student loans.

• It's not a scam: This one-time shot to lock in the fourth-lowest rate in the program's history is real, and you won't get a second chance.

• Shop around: Since Congress repealed the "single holder" rule on June 15, you're free to consolidate with the lender of your choice. Ask your school's financial aid office for recommendations.

• Don't delay: Yes, you can shop around, but with time running short, you might do best to stick with your current lender. Since they already have your paperwork, you can prevent missing the deadline due to a paperwork delay. Your application must be "substantially complete" before midnight on June 30. That means when Friday night turns into Saturday morning, you'd better be done. But it's OK if the payoff of the original loans doesn't occur until after the deadline.

• Pick your discounts: There is surprisingly little competition on loan discounts among lenders; the bottom-line benefits don't really vary much from lender to lender. A popular one, which will reduce your interest rate 1 percentage point after 36 months of on-time payment, sounds good, but the fact is that most students can't make 12 months of on-time payments, let alone 36. Focus instead on discounts that are immediate: cash rebates, shorter on-time payment period for rate discounts or an additional 0.25 percent discount for signing up for automatic payments. That way if you do miss a payment, you'll still get those discounts.

• Don't extend your terms: Much of the marketing blitz, including Sallie Mae's, has quoted monthly payment savings based on a 20-year term versus the 10-year term you're probably paying, since that's the mandated default on federal student loans. What the marketing doesn't readily point out is how much more in interest you'll pay by extending your term. You don't have to extend your loan terms, nor should you unless you feel you will have trouble making your monthly payment. Plus, do you really want to still be repaying your own student loans when your children are in college?