What is Student Loan Consolidation?
Student Loan Consolidation is basically the process of taking all your current student loans and merging them into a single loan with one lender. All you various loan payments are consolidated into a single payment. Student loan consolidation is a form of debt consolidation and is similar in practice to say refinancing a home mortgage loan.
Why Do I need Student Loan Consolidation?
A large majority of students use student loans to fund their education which otherwise would not have been possible due to financial circumstances. Student loans provide them with the funds to attain education that can get them into a well paying job. Repayments on your student loans begin once you leave college and start work. Until then most student loans are in deferment. Unfortunately when you start working, many students find it difficult to meet the required monthly payments for the many student loans debt that they took upon themselves. This is where consolidation comes in handy.
What are the benefits of student loan consolidation?
Loan consolidation has many advantages and benefits. Each student’s situation is different but generally speaking loan consolidation should help you to
- Move to a lower rate of interest for the term of your loan.
- Reduce your monthly payments
- Combine all your payments into a single payment
There are many more reasons. Read about the various reasons in this article about the advantages of student loan consolidation.
When Should I go for a student loan consolidation?
Again broadly speaking, student loan consolidation makes sense if the interest rate on your consolidated student loan is lower than the rate of interest on your current loans. Additionally if you find that managing several loans is becoming a hassle and would like to consolidate into a more manageable single payment. A third reason could be that you are planning on going back to school and would like to consolidate and defer your loans till the time you are done with school. Each reason is situation specific, you have to make sure your reasons are sound.
How is the interest rate calculated while consolidating my student loan?
Interest rate on a consolidated student loan is calculated by averaging the interest rate for all your current loans. This is then rounded off to the next 1/8th of 1%. That said, the maximum interest rate that can be applied on a consolidated student loan is 8.25%. Use this calculator to figure out how much you will save
Can I save a lot if I consolidate my loans?
This is again very situational and depends from individual to individual. The main factor is the current interest rates on your student loans. If you have a high interest rate then yes, you will save money. Keep in mind though simply lowering interest rates in not enough. You can lower interest rates but if your loan term is increased, though you will be paying lower monthly payments, you will end up paying much more since you now will be paying for a longer period of time.
Am I eligible for Student Loan consolidation?
To be eligible for loan consolidation, you have to meet the following requirement.
- You have currently started repayment on your student loans or you are in the 6 month deferment period after graduation
- Your current student loans total more than $7500
- You have student loans with more than one lender
- You have not consolidated your student loans. If you have consolidated your student loans already, you only become eligible to further consolidation if you have gone back to school and taken on more debt.
What kinds of student loans can be consolidated
The following types of loans can be consolidated:
- Direct Subsidized loans
- Direct Unsubsidized loans
- Federal Subsidized loans (Stafford Loans)
- Federal Unsubsidized loans
- PLUS loans
- Federal and private consolidation loans
- Health education assistance loans
- Health professions student loans
- Disadvantaged student loans
- Nursing student loans
- Defense student loans
- Direct student loans
- Federal insured student loans
- Auxiliary student loans
Where can I consolidate my loan?
You can consolidate your student loans directly with the US Department of Education or with private lenders such as banks or credit unions that are part of the Federal family education loan program.
When should I consolidate my student loans?
You can consolidate your student loans once you’ve started making monthly payments on your loans or during the 6 month grace period. The best time to consolidate would be during the 6 month grace period since you might haggle a better rate of interest. Do keep in mind however that you will lose any remaining time in your grace period if you go in for consolidation. One way around this is to wait till your 6 month grace period is almost over and then consolidate your student loan.
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