Consolidating student loans may be helpful

Question: I've been out of school for six years and have several private loans that I'm still paying off. They have rather high interest rates of 7.5 percent to 9.5 percent, which are variable. Any suggestions on how to lower these rates?

Answer: You may not be able to get a better deal, but it's worth a try.

Private student loans don't qualify for the federal loan-consolidation program, which offers the most attractive interest rates. Although private loans may be consolidated, rates are generally higher and variable, based on a benchmark such as the prime rate, currently 8.25 percent, or the three-month LIBOR rate, currently 5.36 percent.

Depending on the lender and your credit rating, you might qualify for a rate as low as prime plus 0 percent or as high as prime plus 9 percent or more (ask if the margin can change over the term of the loan). Many lenders also charge a fee of 1 percent to 10 percent, which is added to the principal.

For top-rated borrowers, one lender that uses the LIBOR rate was recently advertising a variable rate as low as 7.32 percent and a fixed rate as low as 8.59 percent, with no fees. So it pays to check out what's available.

Even if you can't cut your rate significantly, consolidating private loans offers the convenience of writing a single check. And stretching out the term of the new loan lowers your monthly payments (although you'll pay more in interest over time).

Just make sure that there's no prepayment penalty if you want to pay ahead on your loan as your income rises. For an overview of loan-consolidation terms offered by a number of private lenders, start at www.finaid.org.

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Janet Bodnar is deputy editor of Kiplinger's Personal Finance magazine and the author of "Raising Money Smart Kids" (Kaplan, $17.95) and "Money Smart Women" (Kaplan, $15.95). Send your questions and comments to moneypower@kiplinger.com.