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Should students consolidate or not?

In addition to procrastination simply costing students time, it may soon cost them money as well. On July 1, the U.S. Department of Education will raise the interest rates on federal student loans by 1.845 percent, bringing the total interest rate for those in the process of paying off these loans to 7.14 percent.

To lock in low interest rates, student borrowers are being urged to consolidate their federal student loans. After graduation, most consolidate student loans to make payments more affordable as graduates are trying to establish themselves.

“The No. 1 reason people consolidate is to lower their monthly payment,” said Laura Salvato, quality control and training manager for University Financial Services, an agency that markets consolidation efforts for lenders and has a mutual partnership with USF.

Though students can garner a lower interest rate after consolidation, “There’s always a few caveats of caution that need to be thrown in there,” said Leonard Gude, director of the Office of Financial Aid. “Students need to deal with a company that has their best interests at heart.”

Through consolidation, students could stand to lose the benefits that they initially received from their lender. For example, those who consolidate their Stafford loans are no longer eligible to cancel their loan.

“The best thing for students to do is to look at all the lenders they have and to see if it would benefit them in the long run to consolidate those loans or to keep what they have right now,” said Modesto Gonzalez, school relations specialist for College Loan Corporation, the nation’s seventh-largest student loan provider, according to its Web site.

CLC is on the USF Office of Financial Aid’s list of recommended lenders. Though the Office offers advice and tips to students thinking about consolidation, the Office is not directly involved with the actual consolidation of student loans, Gude said. “Whether a student consolidated or not, that is something we would not know until after the fact,” he said.

A student’s lender would be able to help them make the best decision about consolidation, Gude said, as the lenders best know the student’s loan history.

“They really need to talk to their lender to figure out what the advantages and disadvantages are,” Gude said. “It’s really a personal choice issue as to who they want to consolidate their loans through. We would encourage them to contact their current loan holder because they can best tell them if consolidation is best for them. In some cases, consolidation is not the best thing to do.”

The single-lender rule, which limits a student’s consolidation options to the agency they have their loan through, is in the process of being repealed by Congress. There are ways around the single-lender rule, but if students have loans through several lenders, they have their choice of what agency to consolidate with, allowing them to shop around.

When doing so, “students should ask certain questions, such as, ‘What is my fixed rate?’ ‘What is my average going to be?’ (and) ‘What benefit am I going to get from consolidating with you?” Gonzalez said. “Each lender, when it comes to consolidation, has a different offer. Look at the offer that the lender is giving you – in certain cases, you could probably negotiate.”