Student Loan Consolidation
Student loan consolidation is a smart option for the many students, parents, graduates and alumni that are now seeking to consolidate federal student loans debt. Federal student loan consolidation will lower interest rates and save money. Student loan debt consolidation has become popular and many college student loan consolidation centers and services are out there to consolidate all types of loans; be them federal, direct, medical, law, Stafford, PLUS, government and private student loans. Today’s Interest rates are the lowest they have been in decades. Consolidating federal student loans allows you to lock into a federal consolidation loan at a low FIXED rate, averaging 2.85%.
Pitfalls in Student Loan Consolidation
If you are like the majority of college students today, you will graduate from college carrying some student loan debt. While the amounts vary, most students have well over ten thousand dollars in debt by the time they graduate, and it is often spread out among multiple lenders.
When these notes come due, it can be a complicated, time-consuming, expensive and stressful process to keep track of them all and pay just the monthly minimums. When it comes to paying over or paying off early, the process can become nearly impossible to monitor effectively.
As a result, many people opt to consolidate their student loans when they leave college. This results in a single monthly payment that is nearly always lower than the individual loans' payments combined.
Alternatives to Student Loan Consolidation
Try first to tighten up your budget to free up more dollars to meet your loan payments, or take on a second or better-paying job.
If you’ve managed to pay your nonconsolidated loans on time for close to 48 months, try to hang in there a little longer. Lenders commonly drop the interest rates significantly, say two percent, for borrowers who have paid on time for 48 months (sometimes for only 24 months)
Are there any Downsides to Student Loan Conslidation?
The most obvious downside is that even though your payments are smaller, you are extending them over a longer time. That means you’ll pay out more total interest. Also, as with any kind of consolidation loan, the borrower may be tempted to spend more or even borrow more because of the smaller loan payments. Then you’re just piling up more debt than if you hadn’t consolidated.
Will a consolidation loan reduce the interest rates on loans?
Not necessarily. The interest rate on the consolidation loan would be the weighted average of the interest rates of the loans you’re consolidating, rounded up to the nearest 1/8 of a percent. Depending on weighting, you actually could end up paying a higher interest rate, though more likely the rate will be lower. Federal law requires variable-rate direct subsidized and unsubsidized consolidation loans to be capped at 8.25 percent, while PLUS consolidation loans are capped at 9 percent. Some experts are recommending consolidation as soon as possible because the rates will likely go up come July 1, 2000.
How Student Loan Consolidation Works?
A student consolidation loan combines several federal student or parent loans into a single larger loan. Most federal loans can be consolidated: Stafford, PLUS (Parent Loans to Undergraduate Students), Supplemental, Direct, Perkins and others. Some lenders will consolidate private college loans as well. The U.S. Department of Education offers Direct Consolidation Loans (www.ed.gov/directloan/ or 800/557-7392), as do many private lenders (www.finaid.org links to several private lenders).
What types of student loans are eligible for Federal student loan consolidation?
- Federal and Federal Direct Stafford Loan (subsidized and unsubsidized)
- Federal and Federal Direct PLUS
- Perkins Loans
- Federal Perkins (formerly known as National Direct Student Loan or NDSL)
- Nursing School Loan (NSL)
- Health Professional Student Loan (HPSL)
- SLS (Supplemental Loan for Students)
- Loans for Disadvantaged Students (LDS)
- Federal Insured Student Loan (FISL)
- Federal Consolidation Loan
- Federal Direct Consolidation Loan
- In addition to the student loans mentioned above, all undergraduate, graduate, law medical and
