The interest rate on your consolidation loans is the weighted average of the interest rates on the loans you have now, rounded up to the nearest 1/8 of a percent and capped at 8.25 percent. You can get help doing the math with an online calculator at the Federal Direct Consolidation Loans website.
Click on “Borrower Services,” then “Online Calculator.” Interest rates are determined by the federal government and change each year on July 1, so check with a lender to get their take on possible rate fluctuation.
(There are no prepayment penalties for student consolidation loans.) If you have only a couple more years or a few thousand more dollars to go till you pay off your student loans, consolidation is probably more hassle than it’s worth.
Switching to a new lending institution might eliminate any benefits you’ve earned, like lower interest rates for on-time payments over the years.
If you’re just finishing college, you’ll want to consolidate your loans after you graduate but before your grace period ends, so that you can take advantage of the lower in-school interest rate (the 91-day T-bill rate plus 1.7 percent, rather than the standard repayment rate of T-bill rate plus 2.3 percent).