Federal Student Loan Consolidation is a very simple and straightforward program that allows student borrowers with Federal loans, namely the Stafford unsubsidized and subsidized, Perkins, SLS and Parent Plus Loans to place them into a single loan and lower their payments, should that option be desired. However, the compelling reason that consolidation is such an important program for borrowers to use at this time is because the Stafford and Parent Plus loans which have variable interest rates, are currently some of the lowest rates in over thirty years, and can go up in the future, resulting in higher cost if not consolidated. The interest rate you will have in the consolidation is determined by a set federal formula, and is known as a weighted average. This weighted average formula is set forth by the government to ensure that each and every student borrower would get equal treatment by all lenders regardless of location, lender or size of loan. The bottom line is this, the many flyers, telemarketers and websites from the various companies that advertise lower and lower rates all have to give you the same rate on your consolidation. If you do not consolidate while the rates are low, you will eventually pay more for your loans when the interest rate increases.
If you are out of school, in your grace period (the six month span of time from when you graduated or left school or went to less than half time status), and owe over $10,000 then you should consolidate. Parents of students with parent plus loans should consolidate but do not have to wait until the student is out of school to do so.
Consolidation can do three things for you:
In effect, if you want to pay your loans off in the same time span as you currently are, or you are comfortable with your existing payment, you can keep everything the same and just transfer your loans via consolidation to a lender that will fix the rate. And, this is all free, courtesy of your Federal Government. There are no costs, transfer fees, or even credit checks.
Primarily, the differences between the various companies is this; the level of comfort you have with that potential lender/consolidator and the discounts given by the lender you select to use. Most do not have a staff that can answer these types of questions directly, and rely on flyers with fine print explaining away low rates and pressure tactics from phone solicitors to get you to sign and send in your consolidation application before you know all the facts.