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What Is Student Loan Consolidation?

Consolidating your loans can be very confusing. There are many questions you need to ask and to have answered before proceeding with this endeavor. In a lump sum it can sound terrific, yet you need to know more about the full puzzle to be sure.

Loan consolidation is when one vendor, who opens a new loan, pays off several different loans. This new loan allows you to pay just one bill instead of several different loans, maybe from several different lenders. There are benefits to consolidating debt, but there can be drawbacks also.

Depending on your own situation, you will need to discover whether consolidating loans or keeping loans separate is the best for you. Indeed it is great to have the benefit of paying one monthly bill and knowing that your debt is through one financial lender.

The monthly payment is usually much lower on consolidated loans than individual loans. They will take all of your loans, refigure them as a new loan package and then you will be offered different options on how fast you want to pay them back.

The flip side of this is that if you have private lenders for your loans, you will not be able to consolidate your loans through federal consolidation. There are some private consolidation lenders you may want to look into. Keep in mind that they are not held to the same regulations that federal loan consolidation programs are by law.

How To Consolidate Your Student Loans

To consolidate your loans, log on to FinAid for an extensive listing of banks that can provide information, and set up, your consolidated loans. You will need to fill out a little information on yourself and then the financial institution of your choice will handle the rest of the work. Make sure all of your information and records are accurate.

You may only consolidate once, so if rates do go down you will be stuck with your current rate. However, with loan consolidation you generally get a lower fixed rate for your consolidated loans than on individual loans. A fixed rate means that they won’t increase your rate later on as inflation rises. This works in your favor, since rates tend to increase as time goes on.

Tips You Should Know Before Loan Consolidation

Students should only consolidate variable rate loans (for example, Stafford Loans), not fixed-rate loans like Perkins loans. Because Perkins loans are fixed rate, there is no financial benefit and you may lose some loan forgiveness provisions.

Student loan consolidation programs are not the same among lenders, with varying interest rates, grace periods, penalties for late payments, time for loan repayment, and other incentive and discounts. So, it’s best to shop around!

Although consolidation lowers monthly payments, it also means more interest will be accrued over the life of the loan and significantly increase the loans total cost. To best reap the benefits of consolidation, try to make the same monthly payments and pay the loan ahead of time.

To lower total interest rates and cost of your loan, you may not want to consolidate all of your student loans (for example, you may choose to include only unsubsidized loans or exclude a high interest loan with a low balance.) Check with your lender which options would be best for you.

Start To Explore Your Options

Many students will be heading off to school and will be in need of many things. The first year of college brings great surprises, newfound freedom and great financial need. If you are a student or a parent of one, it is important for you to understand your education-funding options. Students will turn to federal or private loans to finance their goals.

Comparing The Two Loans

First, we shall examine the eligibility between the two. The requirements for federal loans offer a numbers of differences when compared to the private loans. The Federal Stafford Loans do not require any credit check. Requesting a private loan would be very difficult to acquire without having a past credit check.

To be eligible for a federal loan, you must be a U.S. citizen/national, or eligible noncitizen. Some private loans may offer options to international students who do not qualify for federal loans.

Also, private loans are credit-based. This means that your eligibility is determined by your credit rating. Most private lenders will allow you to use a co-signer or co-borrower to qualify for a private loan showing proof of income before lending you the money.

Where Does The Money Come From For Each Loan

One of the largest differences between the private and federal loans is where the money comes from. With a federal loan, the loans are part of one of two federal programs. The most common federal loan is a Stafford Loan; these may be issued directly from the government to the student or from a lender such as a bank or credit union belonging to the Federal Family Education Program.

This program is known as FFELP. Also, Stafford Loans may be subsidized or unsubsidized. If you are eligible for a subsidized Stafford Loan, the government will pay the interest while you are in school. These loans are usually given to students who prove financial need.

If you receive an unsubsidized Stafford Loan, you will be responsible for paying all of the interest.

Lenders such as banks and credit unions issue private education loans. The federal government regulates them, but there are no guarantees against default. These loans are provided and guaranteed by private lenders and guarantors. Private loan programs will vary by lender.

Let’s Look At Interest Rates And Repayment Plans

Private loans will have a higher interest rate than federal loans and the interest rate for private loans will always be variable. If you need a co-signer for your loan their credit score will have an effect on the interest rate. Private lenders start at a prime interest and then add a margin.

Federal loans are better when they come to interest rates. The interest rate on the Federal Stafford and the Federal Plus Loans is fixed, not variable. This helps during periods when interest rates rise high.

Repayment plans also differ. Private lenders may not offer benefits such as forbearance or deferment in times of hardship. They also may not grant a grace period, and some private lenders require the interest payment to be made while the student is in school.

However, most lenders do have repayment options to allow deferment of the principal until the student graduates. The federal government has put safety nets into place if you are faced with hardships where you can’t make your loan payments. You can apply for deferment, forbearance, and/or temporarily postponement to reduce your monthly payments.

Repayment plans differ by loan providers for both federal and private loans. Make sure your lender provides you with the options prior to signing any paper work. Also depending on your provider, both federal student loans and private loans may be eligible for different incentive or discounts.

Explore what the many providers offer. The best advise is to spend time in researching a large number of loans and what they offer and what you qualify for. You will be repaying your lender for many years to come, so choose your lender carefully and ask many questions.