Consolidating Your Federal Student Loans

If you are like most Americans, you have left school with thousands of dollars in student loans (the average is about $20,000 for a four-year undergrad degree). If you have gone through graduate school, you may owe tens of thousands of dollars on your student loans. It can be discouraging to finish school, look around, and realize that you owe as much for you education as a house would cost. And to make matters worse, often those federal loans are a mix of subsidized and unsubsidized loans. Plus, they are often divided up into separate loans per year - or even per semester. You could have as many as eight or more separate loans, each with its own interest rate and monthly payment, depending on what the rate was when you got each loan.

Instead of paying each loan individually, which can become expensive and frustrating, you can combine your federal student loans into one consolidation loan. This has a couple of advantages. First, you will be able get rid of multiple federal loans and just worry about making one loan payment each month. Second, you will be able to lock in an interest rate. Even though Federal loans cannot exceed an 8.25% interest rate, they are still variable, ranging from a 2.75% rate on up. I was able to consolidate my loans to a fixed rate of 2.75% prior to the July 1, 2005 rate increase. The rate is expected to increase again this summer, to as much as possibly 7%.