Consolidating Your Student Loans - and Why You Should Before July 2006

If you’re fresh out of college (or almost), be it from technical, undergrad or grad school, chances are you have thousands of dollars in loans that will soon send the creditors to your front door. And if you’re anything like me, you have several different loans from several different lenders. If that’s the case, you’re eligible to consolidate through government-regulated federal loans or through private loans – and you should do soon. The rush is because there’s a bill about to pass which will have a negative effect on your interest rates by this coming July – but more on that later. 

After spending my life under my parents’ financial care, followed by a few years at college in a virtual responsibility “bubble,” I had some trouble understanding exactly what loan consolidation meant and why it’s so important. This article should help clear up at least a few of the questions you’re struggling with. 

Your education loan lender (or lenders) issued at least one (and probably several) loans in your name. The two most common types of loans are Subsidized Federal Stafford and Unsubsidized Federal Stafford Loans. While you’re in school, the Unsubsidized Loans begin to accrue interest – meaning that they take a percent of the total amount, and add that percentage to your principal monthly. The principal is the original amount of money borrowed, without interest. The loans work like a credit card balance – the longer you wait to pay it off, the higher the amount you owe climbs. If you get Subsidized Loans, they don’t begin collecting interest until after your grace period ends.