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What is The Difference Of Consolidating Private VS Federal Student Loans?

Contrary to popular belief, private loans can be consolidated. Here is what you should know if you have them and are considering consolidation.

1. Do not consolidate them with federal loans even if they provide the option.
2. They can’t consolidate until you’re out of school and beginning repayment.
3. In most cases, consolidating private loans will leave you with a variable rate loan and it will not typically fix your loan rate (like federal consolidation).
4. Keep in mind that the best option is often to leave them alone. How to know?

Remember that federal student loans are subject to unique terms and conditions and may not be combined with the Student Loan Consolidator Private Consolidation Loans. You need to take advantage of separate federal and private consolidation loans companies for this.

Look at the benefits of your current lender. There are only about ten lenders that will consolidate any private loans. Most companies require that you have loans with them to be eligible to consolidate with them.

The amount will vary, some will require that you have one or more loans with them some and will require 50 percent or more of the consolidating amount be to with that lender. Researching your lender is a good start.

You should shop around and as mentioned, there are few companies that don’t have stipulations in order to use their consolidations or refinance programs. Here’s a published list: http://finaid.org/loans/privateconsolidation.phtml. The lender, not the government, dictates the interest rates provided and most are linked to the Prime Rate.

Most Often Asked Questions Regarding Consolidation Of Private Student Loans

Is there a certain loan amount that must be considered for private consolidation of loans? Yes, the minimum loan amount is $7,500. And the maximum amount is $300,000.

How can I find out how much I owe and when my private student loans will be approved for consolidation? By reviewing your most recent monthly statement and checking your on-line access to your account balances. And once your required documentation has been received, a loan decision and if approved, will begin the process of paying off the loans you listed for consolidation. Once completed, you will be sent a letter of confirmation.

Regarding interest rates, what is the interest rate on my loan after the first year and can I make interest-only payments in my second year? On the first anniversary of your loan closing, the interest rate on your loan changes to Prime Rate or LIBOR plus 5.oo percent to 5.75 percent, depending on your credit history or if you have a co-signer.

During the second year, you are still eligible to make interest-only monthly payments. It is only on the second anniversary of the loan closing that you will be required to make principal and interest payments.

Which types of loans are eligible to be consolidated in the Private Student Loan Consolidation Program? Any existing nationally marketed private student loan is eligible for the Student Loan Consolidator Private Consolidation Loan. Federal student loans, home equality loans and credit card obligations are not eligible for consolidation.

If you are unsure whether a loan may be eligible please call the customer support center at 866-496-5787.

A Look At Federal Student Loans

The best thing to do is to get a Federal student loan. Federal loans are readily available to students. Private loans are more expensive to pay back and are not recommended if they can be avoided.

The reason Federal student loans are so available is because graduates of college will usually make a lot more money than other people. This gives the lenders confidence that their money will be repaid.

Some of the most positive aspects of Federal student loans are: lower interest rates, options to postpone payments, longer repayment terms and easier credit requirements. Eligibility for some of these loans is need based, while others are not.

The most common Federal student loans are listed below:

Federal Perkins Loans are a low-interest loan available to students who have exceptional financial need, based on the information provided on their FAFSA. Undergraduates can borrow up to $4,500 per year, while graduate students can borrow up to $6,000 a year.

Federal Stafford Loans are available to undergraduate and graduate students. The loan amounts depend on a student’s year in school and whether they are financially dependent or independent

These loans can be subsidized or unsubsidized. Financial need determines which type a student is eligible for. Subsidized loans are based on financial need. The government pays the interest while the student is in school, in deferment, and in their grace period.

Unsubsidized loans are available to all students, regardless of income. The student is responsible for all interest.

Federal PLUS loans (Parent Loan for Undergraduate Students) are a low-interest education loan for parents. Each year, parents can borrow up to the cost of attendance, minus other financial aid received such as scholarships, grants, student loans, etc.

The PLUS loan is not based on financial need. Qualified applicants must pass a credit check.

At Look At Private Student Loans

Private loans are designed to supplement Federal loan programs and are available from schools, banks, credit unions, and education loan organizations. They are usually used to cover education costs that cannot be met by Federal aid.

Terms for private loans very according to the lender and your credit history. Remember you are asking them to loan you money. And keep these things in mind as you consider taking out a private loan.

Private lenders have credit requirements and you many need a co-signer. If you do need a co-signer the co-signer will need to meet the same requirements, if not even higher requirements.

The lender determines the interest rates and fees according to your credit history (and your co-signer’s) and their rules of their individual company. They are not run nor governed by the Federal Government.

Private lenders have control of the money they are loaning to you and may not offer deferment options.

Private loan programs may offer the borrower benefits, such as interest rate discounts, rebates and other incentives. One thing is for sure; all lenders want your business because they make money that way.

No matter what type of loan you take out, be conservative and borrow wisely. All loans have to be repaid rather they are Federal or private loans.

The Most Cost-effective Way To Pay For School.

When it is time to pay for school, there is a simple way to cut through all the financial information. It’s as easy as “go for the cheapest money first.” Let me show you how right here.

Get the free money first. Try for all of the scholarships and grants that are available. They are funds that do not have to be paid back. Ask around, visit web sites, libraries, and financial aid offices and ask how to obtain “College Answer’s Free Scholarship Search”, and get all the “free money” that you can.

Next, apply for federal student loans. These loans generally have below market interest rates and are more flexible with the repayment options. Even if you think you are not eligible for federal money, you cannot be sure until you try. Fill out the FAFSA and start the process.

Third, after you have exhausted free and federal money, private loans can make up the difference. There are a variety of loans; each one has its own requirements and features.

Eligibility Requirements For Federal Loans

To be eligible for federal financial aid, you need to meet the following standards:

• Maintain satisfactory academic progress according to post secondary school guidelines

• Have graduated from high school or earned a GED (or other state or U.S. Department of Education approved certification)

• Register for the Selective Service (if male and between the ages of 18 and 25 years of age)

• Be studying for an eligible degree or certificate at a school that participates in federal financial aid programs

• Submit a Free Application for Federal Student Aid (FAFSA). You can obtain this online at www.fafsa.ed.gov.

• Be a citizen of the United States (or a U.S. national or eligible non-citizen) with a valid Social Security Number

• Have fully repaid any refund owed on a federal student grant

• Show financial need (with the exception of some loan programs)

• Not be in default on a federal student loan

Federal loans can help you avoid high interest credit card debt. They can also help you avoid drawbacks that may come with other types of loans, such as difficulty in times of hardship and repayment. And this type of loan is not as restricted as many of the private loans can be.

A federal government loan can be used to pay for tuition, fees, room and board and many other school charges. Private loans can be used to supplement federal funding to help bridge the financial gap.

Eligibility Requirements For Private Loans

There are not many students of the age of 17 to 19 that can sign for their own private school loan. They have not had the time nor experience to establish a strong past credit record. Therefore, this is where they will need either a parents’ or another dependable co-signers signature for their loan. The other requirements are:

• A U.S. citizen or a permanent resident who has resided in the U.S. for the previous two years

• A solid co-signer, such as a parent or other creditworthy adult

• Minimum of two years of continuous employment (This one just shows the determination on your part and is not always necessary

• Minimum of 21 months of credit experience and a satisfactory credit history

• Many of today’s college students use a “mix” of loans and/or financing solutions to cover the increasing costs of their higher education.

And remember borrowing smart means borrowing only what you need and using the money only for what it’s intended for.

What Does It Mean To Consolidate Student Loans?

Consolidation of student loans means to combine several student or parent loans into one larger loan from a single lender, which is then used to pay off the balances of the other loans. It is very similar to refinancing a mortgage of a home, or guaranteed personal loans.

Consolidation loans are available for most federal loans, including FFELP (Stafford, PLUS and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans and Direct Loans. And some lenders offer private consolidation loans for private education loans as well.

If you have decided that your monthly payments for your student loans have become unmanageable and you need help, you might then consider consolidating. If you are facing deferment and forbearance options, and/or want to avoid default on your student loans, then perhaps it is time to consider consolidating these loans for your protection and ease in life.

How Do I Begin To Consolidate My Loans?

By consolidating your federal student loans, you can obtain valuable money saving benefits and can lower monthly payments. Make sure that you understand what is being offered including any “strings attached” especially. This kind of transaction can save you money and is easy to understand, usually.

It is a good idea to check with each of your lenders. One hallmark of a great lender is one that offers you attractive money saving benefits and that also includes details as to when it becomes time to consolidate. Make sure that you review the complete application including all the detailed information on your loans before signing.

It is understandable that many of your loan details can be confusing, which is why the extra effort on your part or the lender you go with is necessary. The best lender will help you review and complete your application, and help you understand before signing. Your personal information is private and make sure your lender feels the same way.

All of the above information is important that is why I keep referring to talking and obtaining the “best” lender for you. One perhaps that you used for one of your prior loans or a new one who works only with consolidation of loans. Talk, interview, and talk again until you form a trust with that one person.

The Change In Interest Rates

The interest rate on a consolidation loan is the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest 1/8 of a percent and capped off at 8.25 percent.

Now if your have several loans with different interest rates, the weighted average will be somewhere in between. The weighted average does not fundamentally alter the underlying cost of the loan. It keeps the cost structure by including each interest rate to the extent that it applies to part of the overall loan balance.

Don’t be fooled if someone tries to suggest that this will save you money by getting you a lower interest rate. The interest rate may be lower than the highest of your present interest rates. However, it is also higher than the lowest of your interest rates. For all of the interest rate will be combined (the high and the low).

Due to the equaling out of the multi interest rates, most important, the amount of the interest you pay over the lifetime of the loan will be about the same. And this perhaps is the most important news of all.

The Relationships Between Schools And Lenders Are In Question

Concerns have come to the surface that students are paying too much for loans because of questionable ties between universities and lenders. The public-private partnership has enriched lenders at the expense of students.

An inquiry has proven guilt of the above and has generated nearly $10 million in settlements from lenders and universities and has led to the firing or suspension of many administrators and financial administrators. Also, a top official of the U.S. Education Department has also been suspended.

The investigation found that some lenders gave certain schools all-expense-paid trips, stock options, and other personal gifts to the financial aid administrators. By doing this, these favors helped the lenders secure a place on the colleges “preferred-lender” lists that they would give to the students.

Proposals in Congress now have developed to revamp and create better and stronger programs for our students that are more transparent and hopefully fair for all. Yet, the government has its eye out for itself also.

Fewer Private Lenders

There are more than 3,000 lenders that take part in the federal loan program. The 10 largest lenders account for more than half of the loan originations according to Education Department data.

The number of major lenders has been falling and will drop further if lawmakers back proposals to reduce subsidies. However, the savings from those lower subsidies would be used to increase the Pell grants for low-income students and lower the interest rate on federal student loans.

If all of the government’s cuts do take place, that would mean less competition for those seeking loans. Competition encourages lenders to offer interest-rate discounts and waive origination fees in areas where they can. This is created by retail market competition.

There are even smaller cuts than those that are proposed in the legislative. This could cause lenders to shrink those incentives more for borrowers. The government is aware that an over haul needs to take place in the student loan department, yet it is having a difficult time agreeing on the same areas and topics.

Locally, financial aid administrators are also trying to show that their members are conscientious professionals who do look out for students’ welfare. Statements are being added to their applications and they are encouraged to communicate more in this area.

With these financial aid provisions it would save the federal government an estimated $13 billion over five years. Most of the savings would come from reducing subsidies to lenders, with a smaller amount coming from the increase in parent-loan rates.

The Interest Rate Change

The federal government’s college loan program is getting its biggest makeover in more than a decade and largely in the interest rate area. The interest rate on government guaranteed college loans will switch to fixed from variable.

Congress was responding to students who wanted more predictable loan repayments. The rate on all new Stafford student loans will be fixed at 6.8 percent and the rate on Plus loans, for parents, will be fixed at 8.5.

Unlike fixed-rate home loans, neither Stafford nor Plus loans can be refinanced at a lower rate if interest rates drop. Twenty years of research shows that students overall are better off it they are in variable-rate loans due to the cap. Most students and families are going to pay more as a result of this change.

Will all these changes, along with the switch to fixed rates, be good or bad for student borrowers? It’s a mixed bag for students and not so good for parents. Although the proposed cuts in lender subsidies will save taxpayers money, they could cause lenders to rein in their discounts for the students and their parents.