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My wife has $300,000 in student loans! Can we consolidate them or lower the interest rates?

July 25, 2011: 5:05 AM ET

My wife has over $300,000 in medical school loans. We are currently paying them back through the Income Based Repayment program because she is still in her residency. There are five loans in all with interest rates between 3.5% and 8%. Is there anything we can do to lower the interest rates, consolidate or both? – Mark and Jenifer, no address given

The first thing you need to do is to determine what type of loans you have: federal, private or a combination of both.

Federal loans can be consolidated through the direct federal loan program at loanconsolidation.ed.gov. When you consolidate through this program you'll get a weighted average of all of the interest rates on your loans, which should keep the cost around the same, says Mark Kantrowitz, publisher of FinAid.org. While you won't necessarily save on interest, you will be better able to track your payments and make sure no payments fall through the cracks.

Loans you may have borrowed from a private lender are more of a challenge. As the market for private student loans has shrunk dramatically over the past several years, so has the number of lenders willing to do student loan consolidations. Recently, however, some lenders have entered or reentered the market. (For a complete list go to finaid.org/privateconsolidation.) Most, however, offer only variable rates, which may easily increase over the years. You'll want to consider carefully whether it's worth consolidating, especially if your current private loans are at a fixed rate, says Kantrowitz.

You may be able to lower the rate on some of your private loans by simply calling your lenders and asking for a better rate, advises Kalman Chaney, author of Paying for College Without Going Broke and founder of financial-aid adviser Campus Consultants. This tactic may be more effective after your wife has been in her medical career a few years and her income increases. Another possibility to look into: extending the repayment period on her lowest-rate student loans. On many federal and some private student loans, the term can be extended up to 30 years. By choosing to extend repayment even slightly on the lowest interest loans, you can free up more cash temporarily to pay off the higher interest loans more quickly, advises Chaney. And definitely check to see if your loans offer discounts for automatic payments from your bank account. "You could save a quarter or even a half a percent if you do this," says Kantrowitz. "And you'll be certain not to miss a payment."

— Walecia Konrad

Posted in: Credit, Family Money
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