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Don’t Forget to Consolidate Your Loans!

By Erik Folgate

This is a reminder for all soon-to-be college graduates:  CONSOLIDATE YOUR STUDENT LOANS!  It may seem hard to do since you are being bombarded with direct mailings from 100 different student loan consolidation companies.  However, many students forget to do the consolidation before they graduate, and this can be a very costly lapse of memory.  Find a reputable company and consolidate all of your loans into one large loan.  If you do so before you graduate, many companies are offering a fixed interest rate of 4.75%.  If you wait until after July 1st, the interest rate will be variable and it could rise past 7%! 

It truly is horrible that student loan interest rates have been rising lately.  Students should not be penalized as heavily for investing in education.  However, we cannot live in the past, and you must do what you can to lock in the lowest rates available.  I think that Congress will lobby for the student loan rates to go back down, but it may have had something to do with the rising mortgage rates and government bond rate.  When I locked in my rate after consolidating, it was 2.75%  A 2% hike is a big chunk of change over a few years on a $20,000 loan. 

If you feel confused by the whole process, go speak to a financial aid counselor at your college.  They should be able to walk you through the process.  Or if you don’t have time to schedule an appointment, find a reputable consolidating company and call their toll free number.  They are usually pretty helpful with the process, but you will need to know the loan number, name of the company, and amount of the loan for each student loan that you took out over the four years (or 6 years for those of you who were on the slacker plan). 

DO THIS:  Pay your payments on time, because most companies offer an interest rate decrease for paying on time for 12 months straight.  Also, I would stick to a traditional 10 year repayment plan. 

DO NOT DO THIS:  Do not sign up for the automatic EFT payment.  Companies will try to get you to allow them to draw the money directly out of your checking account in return for a small decrease in the interest rate.  The decrease is NOT enough to justify the hassle and control that allows the company to draw the money during a month that you are more strapped for cash.  Never give a creditor access to your checking account.  YOUR money is STILL your money. 

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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