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Barbara

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One of the questions we Student LoanDown bloggers get asked frequently (through comments and our Ask the Expert tool) is, "Can I lower my student loan interest rate?"

Some folks are looking to lower their monthly payment because they're not able to afford it — others are just looking to decrease the total interest paid to their lender. Here's the information I usually pass on to those readers.

When student loan borrowers sign their promissory note  agreeing to pay back the loan, they also agree to the interest rate detailed in the contract. For some loans this will be fixed and for others it will be variable (a margin that is added to a base rate). For federal student loans made after July 1, 2006, the interest rate is fixed. Most private student loans have variable interest rates.

Your promissory note locks in the terms on your loan (including the interest rate or rate margin). You can't "refinance" a student loan the way you can with other consumer credit products, but there are options to possibly lower your current monthly payment, reduce your interest rate, or reduce the amount you pay over the life of the loan.

Quick tangent: For those of you still in school or just beginning to take out student loans, be proactive. Understand what you're borrowing at what rate, so you don't find yourself unable to make payments later. End tangent.

Now, let's talk about the options.

Consolidate: By consolidating your student loans, you may end up reducing your current monthly payment because you are likely extending your repayment period. However, that means you would end up paying more over the life of the loan if you continue paying just the required amount each month. But if you're looking for a little payment relief now and are willing to pay more (or make higher payments later to avoid accruing additional interest), consolidation could be the answer. Your best bet for federal student loan consolidation is through the Department of Education's Direct Loan Program. 

An added benefit of private student loan consolidation is a possible interest rate change. If your credit situation has improved since you took out your loan (or if you bring on a cosigner), you may qualify for a better interest rate than you previously had.

Pay off the debt: Some borrowers could consider using a different consumer loan (personal, home equity, etc., depending on assets) to pay off their student loan. This option has a couple big things to consider, though. You would lose several benefits of student loans like deferment and forbearance options, as well as the potential tax deduction.

Pay more: If what you're looking to do is accrue less interest, then the best solution is to pay more money each month toward your principal balance. Even just a little bit each month could add up to big savings over the life of your loan.

Get the debt forgiven: There are some programs that will forgive a certain amount of a student's debt. For example, there is a federal loan forgiveness option available to students working in public service. 

Use borrower benefits: Ask you lender if they offer any benefits that could reduce your interest rate. For example, some lenders offer a discount if you make your payment automatically.

What other questions do you have about your student loans?

Barbara

Recent grads, have you made your first student loan payment?

If not, it's coming. The six-month grace period of Federal Stafford Loans is ending for May graduates, which means it's time to repay.

Here are a few ideas to start your repayment off the right way:

1. Pay on time. One of the best things you can do to build your credit history and stay on good terms with your lender is to make on-time payments. Stay on top of due dates by managing your loan online. You can even make it simpler by signing up for automatic payments.

2. Pay more. A little extra can go a long way when it comes to saving money over time. Each dollar you pay in addition to your minimum payment means one less dollar to pay interest on. The savings can really add up.

3. Consolidate. If you want to make one student loan payment to one lender instead of several, you can consolidate your federal student loans through the government  and private student loans through lenders like Wells Fargo. Plus, there's an added bonus to private student loan consolidation: You may qualify for a better rate than you had on previous loans if your situation has changed.

4. Talk with your lender. We know some borrowers may have trouble repaying. The important thing is that you talk to your lender about your options. You may qualify for a deferment or forbearance. Or you may be able to pay on an income-sensitive, graduated, or extended schedule.

For those of you already repaying your student loans, what tips do you have on starting repayment on the right foot?

Staci

This week I'm in our nation's capital—Washington, D.C.—attending the National Association of Financial Aid Administrators  conference.

It's unbearably hot and humid. The weather is triggering memories of the two Julys I lived here—when I'd walk the four blocks to my Capitol office in shorts and a T-shirt and change into hosiery and a suit after I arrived, drenched in sweat; when there was a brownout in my northeastern D.C. neighborhood and I sweltered through a sleepless, 100-degree night without air conditioning; when my friends and I would drive to Rehoboth Beach  in the middle of a weekend afternoon just to get some relief from the heat.

When I was much, much younger.

On Sunday afternoon I attended a seminar on the legislative and regulatory changes happening in the student loan industry. Here at the conference, it's a topic as hot as it is outside.

I've mentioned before that lately there's been a lot of media attention given to inappropriate relationships between some financial aid directors and some student loan lenders. But the operative word is some. The majority of those who work in financial aid aren't in it for money or glory. In their profession, there isn't much of either to be had. Rather, financial aid counselors, directors and administrators are doing this work for one reason: to help students and families pay for college educations. And it's complicated, stressful work.

So I'd ask this: Instead of believing all the negative stuff you see in the media about financial aid professionals, give 'em the benefit of the doubt. When you enter their offices, don't automatically be skeptical about their motives or intentions. Remember that they have knowledge to share, experience upon which to draw, and compassion beyond compare.

If they didn't, they wouldn't do what they do. And they certainly wouldn't be sweating it out here at the conference, trying to learn new information about how to help families navigate the choppy waters of financial aid. They really are good nuts, here to help. Let them.

Barbara

I'm a sucker for breaking the awkward silence. If a professor waited long enough after asking a question in college, I would always pipe up. Well, if I kind of knew the answer.

I asked y'all for questions about student loan consolidation, and so far you haven't asked any! Well, the awkward silence is getting to me—so I'm going to raise my hand and ask (as well as answer) questions that I've been asked in the past.

What exactly is consolidation?

Consolidating means taking out one new student loan that combines your other student loans. Your consolidation loan lender will pay off the loans you are combining, so you'll have one new loan for the total amount. BTW, when people talk about student loan consolidation, they're usually referring to federal loan consolidation. Some lenders also offer options for private loan consolidation.

Am I eligible?

If you have federal student loans—no matter which lender holds them—you can consolidate them with any lender. Here are the federal loans that I'm talking about:

• Federal Family Education Loan Program loans (Stafford, PLUS, SLS, and Consolidation Loans)
• Federal Direct Loan Program loans (Stafford, PLUS, and Consolidation Loans)
• Federal Insured Student Loans (FISL)
• Federal Perkins Loans
• Health Professions Student Loans (HPSL)
• Nursing Student Loans (NSL)

And yes, you read that right. If you already have a federal consolidation loan and take out another federal loan (say you go back to school after a couple years to get a master's degree), you can "reconsolidate" and add more federal loans.

You can also consolidate a single Federal Stafford or Federal PLUS loan if you want to lock in the rate.

Why should I consolidate?

Consolidation offers a couple key benefits:

• You might see a lower payment each month—which can help when you're trying to manage other monthly payments while paying back your loan.
  
  
• Instead of making several payments, you'll only have to make one.
  
  
• Your loan will have a fixed interest rate—this is a big one, especially if you have variable-rate federal loans. The next questions tell you why.

What kind of rate will I get?

For federal loan consolidation the rate is an average of the rates on all the loans you are consolidating, rounded to the nearest one-eighth of a percent. But it won't get higher than 8.25%. Speaking of rates …

When should I consolidate?

This is an important question right now because students with variable-rate federal loans will see an interest-rate increase on July 1, 2007. If you have a federal loan that was issued before July 1, 2006, you're in this boat. These loans also increase by 0.60% when your grace period ends, so it's better to consolidate while in grace.

Why shouldn't I consolidate?

In some situations, there may be a better option to ease your loan repayment—like different payment options.

Also, you need to be aware of the disadvantages of consolidation. Since you might be extending your repayment term, you could end up paying more interest in the long run. And, it's possible you might lose any borrower benefits you've been reaping on your loans.

Here's a good checklist  that walks you through your decision.

What else should I know about consolidation?

• You can't "unconsolidate" your loans. Once you consolidate, your old loans don't exist anymore—your consolidation lender paid them off.
  
  
• Until your lender tells you your consolidation is complete, you need to continue making payments on all your separate loans.

OK, now that the silence is broken, is there anything else that you're wondering? If so, raise your hand.

Caroline

If you're about to graduate from college, congratulations! And, if you've taken out student loans , guess what?

You have a new best friend.

If you took out federal loans , you may have already been through an "exit counseling"  session. That's where they tell you all about your rights (blah, blah, blah) and responsibilities (blah, blah, blah) as a student loan borrower.

With the excitement of graduation looming, you may have only heard "blah, blah, blah" during this session. But your responsibilities as a borrower are important. So let me boil them down to one easy-to-remember rule: Treat your student loan lender like your new best friend.

Got it?

Now let me break it down a little further …

• When you make a life change, you tell your friends. Well, since your lender is your new best friend, remember to tell them when you change your name, when you move to a new address, change your Social Security number, or if your school status changes.
  
  
• If you're in trouble, you tell a friend, right? If you're having problems making your student loan payments, tell your lender—don't hide from them. Your lender can help you work out a payment plan and avoid default .
  
  
• You wouldn't borrow money from a friend and try to get out of repaying it. You can't do it to your student loan lender either. You HAVE TO repay your loan as agreed. No exceptions if you didn't finish school, didn't like your major, can't find a job, yada, yada, yada.
  
  
• If your friends can't get  hold of you for a few days, you don't ditch them. Same with your lender—if you don't get your bill, YOU STILL HAVE TO PAY IT. There's no "get a free month" if your bill doesn't arrive for whatever reason.
  
  
• You go to your friends' parties. Consider entrance and exit counseling sessions less-than-exciting parties given by a great friend. You gotta go.
  
  
• You read texts, emails and IMs from your friends. You new friend will probably get in touch with you in a more traditional way—like through the mail . But you're required to open and read everything your lender sends you. So, hello mailbox!
  
  
• For better or worse, relationships change. Learn about your consolidation and refinancing options—these could be good things for you. But you also have to know what will happen if things go south in your relationship with your lender—as in, if you default. (Don't do it, it's so not good.)



• Know how to reach your friends. This is Friendship 101—you KNOW their phone numbers, addresses, etc.  Same with your lender—be sure you know where to send payments and written correspondence.