I have blogged about student loan consolidation in the past on other websites, and will continue to do so because it’s one financial move that makes a lot of sense! Student loans taken out prior to July 1, 2006 come with a variable interest rate. Variable interest rates don’t always work in the borrower’s favor and many borrowers find that the uncertainty of a changing interest rate makes it difficult to plan ahead.

Additionally, without consolidated student loans, you’ll be making individual payments on each student loan you’ve taken out. Over the course of a four-year degree, that can add up to a significant number of payments. Aside from keeping track of several payment due dates and amounts, you will probably pay a higher interest rate than you would if you consolidated your college loans.

Student loan consolidation makes a lot of sense; no matter what angle you look at it from with perhaps one notable exception. If you have Perkins loans, you probably won’t want to consolidate those loans. This type of student loan is made to low-income students who have a fixed interest rate already. Further, they have certain payback benefits/features that would be lost if these student loans were consolidated.

The majority of students, however, have unsubsidized Federal student loans. These college loans are prime candidates for consolidation, regardless of when they were made. Student loans made after July 1, 2006 have a fixed interest rate at 6.8 percent. Parent loans have a higher fixed interest rate thanks to an uncorrected goof by Congress.

College loan consolidation will relieve you of making multiple payments, and paying multiple interest rates. With consolidated student loans, you can also stretch out the payment terms. If your original ten-year term means that you’ll be making hefty loan payments, a consolidation loan will allow you to stretch out the payments to twelve, fifteen or even twenty years. This is a great deal, especially for graduate students and for those students who aren’t making much straight out of college.

You can also consolidate your student loans any time you want to. You don’t need to wait until your education loans are in repayment. You can consolidate them while you’re still in school. The only time you’ll have difficulty consolidating your college loans is if your loans are in default. Since consolidation can help you avoid default, look into student loan consolidation options sooner rather than later.

The number of universities that plan to replace student loans with grants is growing. Last week, Haverford College announced that it would join the ranks of universities such as Harvard, Swarthmore and the University of Pennsylvania that intend to phase out student loans as part of a student’s financial aid package.

The move toward no-student loan educations is not without the proverbial catch. Universities who are moving toward non-student loan financial aid are generally doing so for only the lowest-income students. Students with higher family incomes can still expect to see college loans as part of their aid packages. 

The University of Pennsylvania plans to offer the no-student loan deals to entering students whose family incomes are less than $100,000. The new approach will be introduced for the entering class in 2009.  For families whose income exceeds $100,000, the university plans to reduce need-based college loans by 10 percent.

Haverford will also offer the student loan-free financial aid package to the entering class of 2008-09. As of now, Bryn Mawr has no plans to dump student loans.