Experts Recommend Comparison Loan Shopping This Season

[Jul 17, 2007.]

This summer, financial experts are recommending that consumers shop around when it comes to student loan consolidation.

While combining several student loans into one can save a college graduate money in the long run, loan consolidation is not necessarily an automatic money-saver in 2007.

Flashback to 2006. Financial experts were recommending that college graduates refinance loans prior to July 1st, when rates rose from 4.7 percent to a steep 6.54 percent. While rates are rising again this summer, the increase is expected to be minor, with the interest rate climbing to 6.62 percent.

Changes in the consolidation process may also make it less inviting for college graduates. As a result, borrowers should carefully consider terms before making a final decision on consolidation.

For instance, it's important for a graduate to determine his or her rate and whether it is fixed. An individual who graduated this year is actually likely to possess both variable and fixed-rate loans. If, however, he or she already consolidated loans within the past two years, the fixed interest rate may be so low it wouldn't be worth the trouble of going through another consolidation.

If, though, student loan consolidation makes financial sense, borrowers should go through the process within six months of graduating. That way, they're benefiting from the grace period which gives them a bit of a reprieve in paying back their loans. Graduates should keep in mind that repayment frequently begins immediately on loans that have been consolidated. Still, college graduates can request that a lender hold the loan package until after the grace period ends.

Students who choose to consolidate can have up to 20 years to pay back their loans. They may also be able to reduce their monthly payments in half. That can be critical for borrowers who will be working in positions that are on the lower end of the pay scale.