In-School Student Loan Consolidation
The Rules Have Changed
Up until July 1, 2006, students that wished to consolidate some of their federal student loans while still in school were eligible. In fact, the previous in-school option gave active students the chance to lock in very amenable interest rates as soon as they came along. Now, due to new legislation, federal loans are only eligible for consolidation during grace period and repayment. In some cases borrowers may consolidate federal loans that have slipped into default, but this depends on many factors.
Legislative Changes Made In-School Obsolete
Legislative changes affected consolidation loans provided both in the Direct Federal Loan Program as well as the Federal Family Education Loan Program (FFELP). FFELP lenders have limited leeway with the Federal Consolidation Loan; most offer their own perks in the guise of interest reductions and even cash back incentives.
While options for in-school consolidations are now very limited, the process is much more simplified. Any in-school consolidation options you may find will be confined to private student loans. Have no private loans and you must wait until after graduation. Shop very carefully; any opportunity to even apply for consolidation loans while you're in school are rare:
- Sallie Mae allows student borrowers within 30 days of graduation to apply for their Private Loan Consolidation. Borrowers must have at least $5,000 in private student loan debt and must be of legal age in their home state of residence to qualify. If you opt for this in-school application, be advised that your six-month new grad grace period becomes obsolete. Repayment of the consolidation loan begins usually within 30 days of application.
Get the Next Best Thing to In-School
Since the advantages to applying for student loan consolidation while in school are now obsolete, the next best option you should look for are the incentives given for grace period consolidation. It's the next best thing. Many FFELP lenders offer decent interest rate reductions for borrowers that consolidate in grace periods. Some allow you to apply during your grace period, even give you the cut in interest AND let you ride out the rest of the grace period.
Private consolidation loans terms will certainly welcome your application during your grace period, but don't bet on getting the same interest reduction as reward.
