The Young Texas Lawyer

As a fresh graduate and newly licensed attorney, the first issue you face after finding a job is what to do about student loans. Many students put their loans in a dark corner of their brain and don’t visit that corner except in sporadic instances of fear and anxiety. The key to paying off student loans is to take them head on and research all your options. Remember, generally you can only consolidate your loans once.

The current financial crisis has made the student loan consolidation process into a game of cat and mouse. Once eager lenders have vanished due to a lack of funding and the rock bottom interest rates we are facing right now. But before we get to consolidation and interest rates its important to know exactly what student loans you have outstanding. You could rummage through tons of paperwork or you could simply log on to the National Student Loan Data System. The NSLDS is a department of education centralized database for all of your government backed loans. Please keep in mind this site does not contain information about private loans and you will have to get that information directly from your lender.

Now that you know every loan you have outstanding you can begin to weigh options regarding consolidation. There will be two types of interest rates on your loans, both fixed and variable. Right now, you are hoping you have more variable rate loans since interest rates are at all time lows. Any loan disbursed prior to July 1, 2006 is a variable rate loan. The variable rate changes every July 1 and is calculated based on the following:

• The 91-day T-bill rate + 1.70% during in-school, grace, and deferment periods.
• Starting July 1, 2008 the interest rate on variable rate loans is 3.61%.

• The 91-day T-bill rate + 2.30% during repayment periods.
• Starting July 1, 2008, the interest rate on variable rate loans is 4.21%.

As of today, the 91-day T-bill rate is an amazingly low .15% — therefore if the rate stayed this low you would get your loans consolidated for under 3%, which is an amazing rate. So the moral of the story is if you haven’t consolidated already then wait until just before July 1st and determine what the new rate will be using the T-bill auctions. If the rate will be going up then consolidate before it does. If its going down then wait until the new one takes effect. If you have fixed rate loans then you can consolidate at anytime and your overall rate will be a weighted average of the aggregate rate of your loans.

Since many lenders, including Sallie Mae, are no longer taking applications for loan consolidation then its best to utilize a Direct Consolidation Loan from the Department of Education. Starting January 1, 2009 there will be even more benefits for borrowers such as Income-Based Repayment options and Loan Forgiveness Programs. To learn more about these two programs visit IBRNinfo, an independent non-profit source of information about these new programs.

Its important to have all of your information readily available when making these decisions and it takes some number crunching to make sure you are getting the best deal. If numbers aren’t your strong suit then make sure you ask a friend or relative to help you out. The right decision can end up savings you thousands of dollars!

Written by Robert B. Abtahi