Question: i keep getting paperwork for student loan consolidation (such as HALO)…is this a “gimmick” or is it something i should consider doing. right now i pay out roughly $450 a month (for 10 years) for my student loan… any help would be great.

Answer: Stafford loans have a variable rate that is adjusted each sumer based on a relationship to t-bills, with a cap of 8.25%. Current rates are 4.06%, the lowest they have ever been. In the future that rate will change, up or (not too likely) down, each summer. Borrowers may choose to “consolidate”, meaning that all Stafford loans are brought together as one loan and the interest rate becomes fixed at the current rate plus a small amount. Current consolidation rate is 4.13%. On the likely assumption that rates will go back up over the life of your loans, locking in a permanent low rate is beneficial. But, most lenders automatically consolidate Stafford’s into a long-term loan unless you request otherwise and the extra years of interest will offset your savings – request a shorter term, or if they can’t do that then simply pay an additional amount each month to still wipe it out at the end of the current ten year term – there should be no penalty for prepayment. You don’t need to change lenders – your current lender probably offers a consolidation program. But check out the competitors – some offer promotional bonuses. When you do a consolidation loan, the lender takes a weighted average of all loans you are including in the consolidation and rounds it to the nearest 1/8 percent. So a consolidation loan could raise or lower the interest rate. Most lenders have a calculator on their site which allow you to see if it would be to your advantage to consolidate. Of course, the biggest advantage is that your interest rate is fixed for the life of the loan. With interest rates now at the lowest point they’ve ever been, to many that is a strong reason to do a consolidation loan.

For those of you receiving mass mailings, my suggestion is be careful who you work with. Due to the huge increase in consolidation loans, many companies have entered the lending field over night to capitalize on this business.

Also, keep in mind that, if you have all of your loans with one lender, then you must do a consolidation loan with that lender. This is a Federal reg called the One Lender Rule. There has been talk about removing this reg during Reauthorization, but that’ll be a couple of years down the road.

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