Consolidation countdown for student loans

College graduates, listen up.


Graduates typically have a six-month grace period after leaving school before their first student loan payment is due. Soon the reality of all that debt will set in.
A consolidation loan allows you (or your parents, if they have a federal PLUS loan) to combine several types of federal student loans with various repayment schedules into one loan with one monthly repayment at a fixed rate. Additionally, your payments can be stretched from the standard 10 years to as long as 30, depending on your debt amount.
If you want to consolidate your loans, you have just 180 calendar days from your "separation date" to capitalize on the .60 percent interest-rate reduction given to borrowers who consolidate their loans during the grace term.
If you don't know your separation date, check first with your lender. You also can find details of your student loans by going to the National Student Loan Data System. The Web site is www.nslds.ed.gov.
The separation date is important to know because if you consolidate your loans during your grace period, you get the lower rate, which is based on the grace-period rate and is currently 6.54 percent for Stafford loans issued beginning in July 1, 1998, through June 30 of this year. If you hesitate (or procrastinate), the variable Stafford loan rate jumps to 7.14 percent.
The final rate can be different than the variable rate because when you consolidate, you lock in the weighted average of all your loans, rounded up to the nearest eighth of a percentage point.
Many lenders will offer further rate reductions under certain conditions. For example, Sallie Mae will drop your rate to 6.375 percent if you elect to have your payments taken directly out of a savings or checking account. If you make your initial 36 payments on time, you can further reduce your rate to 5.375 percent.
Before you settle on one lender, shop around for the best terms. The single holder rule was abolished this year. Now no one has an excuse not to comparison shop.
Washington Post Writers Group

Contact Michelle Singletary at The Washington Post, 1150 15th St., NW, Washington, DC 20071, or by e-mail at singletarym@washpost.com.