Students consolidate loans as rates to increase

Abbey Stirgwolt

Student loan consolidation is a big deal this summer – but only if it’s done before July 1.

Why the rush?

On July 1, student loan rates will switch from the current variable-interest rates to fixed rates. This will increase the rate of federal direct student loans by 1.84 percent, resulting in a new 6.54 percent loan interest rate, said Mark Kantrowitz, founder of and director of Advanced Projects for FastWeb.

This means that if a student had a $20,000 variable-rate loan and decided to consolidate, he or she could end up saving between $2,200 and $2,300, depending on the term of the loan, Kantrowitz said.

“Students want to consolidate before the end of the month to lock their current interest rates,” he said.

The increase is the result of a national hike in loan rates, which change each July after a three-month analysis of federal funds, Kantrowitz said.

Comparatively, the increase itself will dwarf almost any other in the 40-year history of federal student loans.

“It’s the second-largest in the history of the (federal student loan) program,” Kantrowitz said.

On his Web site, Kantrowitz defines student loan consolidation as combining “several student loans into one bigger loan from a single lender.”

For some students, the option of extending the term of a loan – for example, from five years to 10 – may seem like a cheaper option because the payments are smaller. However, term extension usually leads to “a substantial increase in interest,” Kantrowitz said.

In terms of interest, the best time to consolidate a student loan is during what is known as the grace period: The period of time when a student is still in school and up to six months after he or she graduates. This is when interest rates are at their lowest, Kantrowitz said.

For students considering loan consolidation, the Kent State financial aid office Web site offers the following advice:

• Any federal loans, including Perkins, nursing, subsidized and unsubsidized loans, are eligible for consolidation. Multiple federal Parent Loan for Undergraduate Student loans, better known as PLUS loans, may also be consolidated.

• To find out information about what federal loans they have, students can visit the National Student Loan Data System Web site at

• Before consolidating, students should consider how consolidation will affect repayment status, grace period and deferment options.

• Students should be sure to research their options before choosing a lender in order to make an informed decision before consolidating.

Time is also of utmost importance, Kantrowitz said. Last year, lenders processed between $40 and $50 billion in loans, and that figure “takes lenders awhile to process,” he said.

Kantrowitz predicted a proportional number of loans waiting to be processed this year.

He also encouraged students to take advantage of the savings while they can, because the low rates may not last.

“Rates will never get this low ever again,” he said. “The ability to lock in low rates is going to cost the government lots of money.”

Senior educational studies major Danielle Flink, who has taken out both subsidized and unsubsidized federal loans, said she plans to consolidate soon.

“I haven’t (consolidated) yet, but I’m planning on it before July 1,” she said.

For more information about loan consolidation, students can visit the Kent State’s financial aid Web site at or Kantrowitz’s Web site at

Contact news editor Abbey Stirgwolt at [email protected].