On July 1 the variable interest rates for next year dropped dramatically on Stafford Loans. Consequently, this may be a good time to consider consolidating your student loans; however, only federal student loans are eligible. Each borrower’s situation is different, but certain incentives are available to reduce interest rates even lower. Electronic debit payment will reduce the interest rate by .25 percent as long as it is in effect. The federal government also offers, until September 30, an incentive of a 0.8 percent reduction of the interest rate upfront if the first 12 consecutive payments are paid on time.

Consolidation is not a combining of loans. Consolidation results in a new single loan with its own terms and conditions for paying off the loans being consolidated. Now may be a good time to take advantage of the current lower interest rates to lock in a low fixed interest rate on a consolidation loan.

To determine the fixed interest rate for your consolidation loan, you will need to know the loan amounts outstanding, the year(s) that you borrowed the loans, and the current interest rates on those loans. You can find out your current balance on your Stafford Loans at these websites:  www.eduservices.com and at www.unipac.com for Stafford loans disbursed at UMKC in the last few years.

Stafford Loans have different interest rates depending on when they were disbursed. Current interest rates on Stafford Loans that are in repayment are as follows:
• Disbursed before June 30, 1998 = 6.79%
• Disbursed after July 1, 1998 = 5.99%

With this information, you can figure the fixed interest rate on the consolidation loan. You can use the Direct Loan calculator at the Stafford website at www.loanconsolidation.ed.gov or you can do the math to check this by using the following four-step formula:
• Multiply each loan by its interest rate to obtain the “per loan weight factor”
• Add the “weight factors” together
• Add the loan amounts together
• Divide the “total per weight factor” by the total loan amount and then multiply by 100, round off to the next highest 1/8 percent

You do not have to consolidate all your Stafford Loans. As for Perkins and HPL loans, you might want to do a calculation including these loans and also one excluding them to see what effect their inclusion might make. These loans have a fixed five percent interest rate, so it is generally not advisable to consolidate. But with Stafford rates this low, it may be beneficial.

There are no fees of any kind associated with consolidation. Your costs may include postage and photocopying. You can call 1-800-557-7392 with questions or to obtain an application packet, or you can visit the website at www.loanconsolidation.ed.gov for information and to apply electronically online. To contact Erl Suni, call 816-235-2084 or e-mail sunie@umkc.edu.