Every year thousands of students graduate from colleges, universities, and other educational facilities and are surprised to find the amount they owe for student loans.
Students loans are a necessity for the majority of students because of the high cost of post-high school education. So graduates may receive several bills from lenders they borrowed from over the years and for someone just starting out their new job, paying these student loans back is just not feasible.
This is where a student loan consolidation comes in to combine all the loans together into one with a longer payoff period and lower monthly payment. For example let’s say a graduate borrowed $50,000 from 4 different lenders and has 4 payments each month totaling $1,000.
Instead of having to pay 4 separate bills and owing $1,000 every month, consolidating the student loans will create 1 payment that can be much lower depending on the years set for the new loan. Below are some ways to get the best interest rates on consolidated student loans.
Government Student Loan Consolidation
The main source of student loans comes from federal Direct Loans or Federal Family Education Loans including subsidized, unsubsidized, PLUS, Perkins, and other types.
Federal loans can be consolidated through companies that participate in the government student loan consolidation program or can consolidate directly with the government through the U.S. Department of Education Consolidation Loan Program.
By consolidating federal student loans, all the federal loans are added together and a weighted average is calculated for the new interest rate and cannot be higher than 8.25%.
The loan repayment term can be set from 10 to 30 years which will affect how much overall interest is paid and what the monthly payment is. Longer loan terms have lower monthly payments but more is paid towards interest.
Government student loan consolidation also comes with some of the benefits that come with regular loans such as deferment and forbearance. Some companies also offer interest rate reduction or principal reduction for making on time payments or enrolling in automatic payments.
To find the best interest rates for government student loan consolidation takes some searching. Consolidating student loans will result in the same interest rate no matter what company the loan is with but what can change is discounts offered by certain companies.
Some companies offer interest rate discounts by meeting certain conditions. This is where interest rate savings can be found, through special incentives offered by some companies.
Private Student Loan Consolidation
Private loans are another method of paying for higher education and a student may borrow from several lenders throughout their time at school. Private student loan consolidation can combine all these loans into one with a single monthly payment that can be much lower.
Consolidating private loans can result in huge savings because of variable interest rates. Private loans have variable interest rates that are based on either the LIBOR or Prime index.
A lender will provide a base index rate which is calculated according to the credit rating of the consumer. The interest rate for the consolidation will be the base index rate plus the LIBOR or Prime index.
To get a better interest rate for private student loan consolidation, a consumer can search for a private lender that offers better rates. A student whose private loans had high interest rates because of lower credit ratings could improve their credit rating and then apply for private student loan consolidation and lock in a lower base interest rate.
Having a cosigner is another way to lower interest rates. Just like other loans, some companies will offer interest rates based on the cosigner’s credit rating which is an ideal option for people with bad credit.
Having to Fuss About Expensive Student Loans and the Interest Rates Can Be Stressful to Most Parents
Aside from the interest rates to worry about, they have to think about ways on how to manage their bills. However, consolidation of loans can be a big help in managing the financial issues in this situation.
Being organized is an effective way to control expenses and manage payment of bills within the time frame. Loan rates can be painfully expensive when managed incorrectly. Thus, it is harder and longer for you to finish payments of bills. To help with the consolidation, here are some of the most asked questions about loan consolidation rates.
• How much would it cost to consolidate loans?
Good news! There is no cost for consolidation of loans. The only payments you are going to worry about are the increase in interest rates on consolidating your loan.
Make sure to choose the company that offers the lowest interest rates. You can have a choice to pay in earlier to receive an educational loan.
• Who has the right to consolidate the loan?
Both the student and the parents can do this. However, their loans cannot be consolidated because loans can be consolidated only for the same borrower that used it. Students and their parents can have their loans consolidated separately.
If a student is married, the full amount of the loan would be the responsible of each. They are not allowed to consolidate their loans as one. If they ever have a divorce, the loans are impossible to separate, as well. In 2005, the Congress agreed to this bill to prevent problems that might occur in the future.
• Can all loans be consolidated?
Yes. Any student loans can be consolidated, including those of students who had single loans. However, there are some restrictions that should be observed by everyone who intends to take a loan.
Lenders are knowledgeable in new ideas and regulations regarding consolidation of loans and the permitted rates. Any approved federal education loan can be considered for consolidation and it is even possible to consolidate a single loan.
Consolidation of student loans can be done only once and adding consolidation loans can be done to your unconsolidated loans. Consolidation of two loans can be possible.
Put in mind that a consolidation loan has a fixed loan rate limited only to average or minimum interest rates applicable to a specific area. Previous loan consolidations should not be ignored in any case because this would not be terminated in the long run.
Currently, there is a new regulation on loan consolidation rates that can put a limit you the user’s ability to transfer to a different lender.
Usually, most people consolidate their loans only once until the end of period or after the repayment period would start again. It is advisable to exclude at least one loan from consolidation to make use of the chances to be able to consolidate your loans so you can switch to various lenders in the future.