Everyone describes the act of consolidating school loans slightly differently. Some say consolidation cuts your monthly payments. Others prefer the interest rate decrease after 36 months more useful. Finally, others enjoy only paying one bill each month.

Regardless of your preference, school loan consolidation encompasses all of the above, and can almost certainly assist you with either multiple federal loans or private loans.

Looking at federal loan consolidation, this is a fixed-rate refinancing program that combines all of your existing federal loans into one new loan. Examples of potential loans you can consolidate include Stafford, Parent PLUS, Perkins, and Direct. In terms of saving money, school loan consolidation can lower monthly payments up to 53%.

Alternatively, private student loan consolidation is a separate program for refinancing all non-federal school related debt. This method of consolidation offers the convenience of single, lower monthly payment for an individual’s private loans.

Federal Student Loan Consolidation

Legislative has recently (7/1/06) been passed regarding federal loans. In-school consolidation is no longer an option. You will need to be out of school to be eligible to consolidate. Next, you’re no longer required to have multiple lenders. And, you are no longer able to consolidate your loans with your spouses’ loans.

A federal consolidation loan is a governmentally ‘set’ term and will be the same regardless of who your lender is. Many people consolidate with the government because they assume they will have more ‘benefits’ than other programs. The reality is that the benefits of the loan will be the same regardless of whom the loan is through.

The primary conclusion, or the “financially smart” option is not going to be the same for each student. It is a factor of how you plan to repay your debt and what is most important to you at this time in life. It also depends on where you live. Consider all options, most states offer many different types of consolidation programs. Here are some examples:

Quick Repayment (1-3 years)

• .25% interest rate reduction for auto pay

• 5% principal balance credit

Extended (beyond 8 years)

• .25% interest rate reduction for auto pay

• 2.25% reduction after 48 on-time payments

Intermediate Repayment (3-8 years)

• .50% reduction for auto pay

• 1.25% reduction after 48 on-time payments

Private Loan Consolidation

As with federal loan consolidation, we must first look at the changes and considerations for private loan consolidation. First, you cannot consolidate private loans until you’re out of school and beginning repayment. Next, you cannot consolidate private loans with federal loans.

And unlike federal consolidations, in the vast majority of instances, consolidation private loans will leave you with a variable rate loan, not a fixed interest rate. Remember after checking all of your options, keep in mind that the best option is often to leave your loans alone.

As mentioned, there are only a few companies that don’t have stipulations in order for you to use their consolidation refinance program. You will want to shop closely the loan rates and terms because the lender, not the government sets the interest rates (most are linked to the Prime Rate.)

Perhaps the most important question to ask is “how is your credit now”? And what did it look like when you first took out your loan? Private loans are credit-based and if in any way you have had problems along the way you should reconsider.

Also, remember most companies will assess fees to consolidate, along with maintaining a variable rate, even if your credit has not dropped. It can be a difficult decision and only you can decide after knowing your financial situation if consolidation will lift that burden or increase that burden.

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.