With student loan interest rates set to rise between 1.5 and 2 percentage points on July 1, students and graduates should put a student loan consolidation application on the top of their reading list this spring. In the race to beat the rate hike, Sallie Mae, the nation's largest consolidator of student loans, cautions borrowers that choosing the wrong lender could be a costly mistake.

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"Consolidating student loans before rates rise on July 1 could save a borrower thousands of dollars, but it is critical that students and graduates be savvy when it comes to selecting a lender," said Patricia Scherschel, vice president of student loan consolidation for Sallie Mae. "Choosing the wrong lender could jeopardize their ability to secure the lowest interest rates and the best discounts available to them."

For example, Scherschel warns that applying for consolidation with an ineligible lender could delay the process and inadvertently cause a borrower to miss the June 30 deadline. Borrowers should know that --

* If their loans are held by a single private-sector lender, they should

contact that lender to request consolidation.

* If their loans are held by more than one private-sector lender, they

may consolidate with any private-sector lender.

* In most cases, if all of their loans are held by various private-

sector lenders, they may consolidate with a private-sector lender but

not with the Direct Loan program.

* If their loans are Direct Loans, they are eligible to consolidate with

the Direct Loan program or any private-sector lender.

All lenders use the same interest-rate formula, but some lenders offer richer borrower benefits, such as interest rate discounts for timely payments. Sallie Mae, for example, offers eligible borrowers with a balance of at least $10,000 a rate discount of 1 percentage point after they make their first 36 payments as initially scheduled. Customers will continue to receive the reduction as long as they make on-time payments. In addition, they can receive an immediate 0.25-percentage-point reduction in the interest rate on their Consolidation Loan after they sign up to pay via direct debit; this benefit is available for balances of $7,500 or more.

Interest rate discounts like those offered by Sallie Mae and other private lenders can add up: A borrower with a $20,000 balance who applies to consolidate with Sallie Mae prior to July 1 is eligible for nearly $3,400 in savings from interest-rate reduction rewards, assuming a consolidation rate of 4.75 percent and a 20-year repayment term. The quarter-point interest rate discount for auto-debit accounts for a little more than $1,000 of the total savings. The 1 percentage-point rate discount after three years of on-time payments is the more valuable benefit, because it significantly reduces the cost of the loan for the majority of the repayment period.

"Make sure you investigate the lender's benefit program and get accurate savings estimates before you apply," advises Scherschel.

In addition, Sallie Mae offers combined billing for its Federal Consolidation Loan borrowers who have private education loans with the company. Borrowers also have the option to consolidate their private student loans with Sallie Mae, which could extend their repayment term and lower their monthly payments.

"Don't be short-sighted. Consolidating your student loans will lengthen your repayment term, creating a long-term relationship with your lender, so it's important to also consider lenders that can offer flexible repayment options, life-of-loan servicing, and a single point of contact," says Scherschel.

For more information about student loan consolidation, visit http://www.SallieMae.com/loanconsolidation.

SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, is the nation's leading provider of education funding, managing nearly $127 billion in student loans for 9 million borrowers. Sallie Mae was originally created in 1972 as a government-sponsored entity (GSE) and terminated its ties to the federal government in 2004. The company remains the country's largest originator of federally insured student loans. Through its specialized subsidiaries and divisions, Sallie Mae also provides debt management services as well as business and technical products to a range of business clients, including colleges, universities and loan guarantors. More information is available at http://www.SallieMae.com. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.

Source: prnewswire