Consolidated student loans can be defined as rolling all of your student loans into a single loan. This allows you to make a single payment to a single lender instead of keeping track of several separate loans.
Paying off student loans by consolidating all of the loans into one is a great help for college graduates.
Graduates are usually weighed down by debt that accumulated due to the loans that were needed to fund their education. These loans were usually taken out from different lenders. This means they each have monthly payments with separate checks, for different amounts and each paid to different lenders. Consolidated student loans make this process much easier to manage because all the separate loans will be replaced by a single loan. Both students and their parents can reap the benefits of consolidated student loans.
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There are plenty of reasons that make consolidated student loans worthwhile:
- It is possible to save quite a bit of money because your loan term’s interest rate becomes fixed at a rate that is usually lower than the original rate.
- Your monthly payments are lowered.
- Your student loan payments are combined into a single monthly bill.
- Consolidating your loans gives you get access to flexible repayment alternatives.
- Consolidated student loans feature no prepayment penalties, and no charges or fees, and they also don’t require any co-signers or credit checks.
2The Student Loan Consolidation Interest Rate
If you decide to consolidate your student loans you will get a new interest rate. This figure is computed by finding the average rate of all your loans and then rounding off the result to the next ⅛ of one percent; the new interest rate cannot go beyond 8.25%. A student loan calculator is available at www.loanconsolidation.ed.gov for interest rate computation purposes.
3Eligibility
The following requirements must be met before one can consolidate his/her student loans:
- You should either be in the six-month grace period after graduation or should have already started loan repayment.
- Your eligible loans should amount to more than $7500.
- There must be multiple lenders.
- You can't have already consolidated your student loans (unless you have returned to school and acquired new student loans).
4Types of Loans That Can Be Consolidated
The following are the loan types that can be consolidated:
- Nursing Student Loans
- Federal Subsidized and Unsubsidized Federal Stafford Loans
- Loans For Disadvantaged Students
- Direct PLUS Loans and Federal PLUS Loans
- Health Professions Student Loans
- Direct Consolidation Loans and Federal Consolidation Loans
- Health Education Assistance Loans
- Guaranteed Student Loans
- National Defense Student Loans
- Federal Insured Student Loans
- National Direct Student Loans
- Federal Supplemental Loans For Students
- Federal Perkins Loans
- Auxiliary Loans to Assist Students
- Direct Subsidized and Unsubsidized Loans
5Saving Money
The amount of money you can save through consolidated student loans is dependent on the interest rate of the new loan and whether you opt to lengthen your repayment plan.
Sallie Mae, the leading provider of student loans in the US, estimates that with loan consolidation it is possible to cut down one’s monthly payments by as much as 54%.
The repayment of student loans should typically take 10 years but this can be extended to as many as 30 years depending on the amount that is being consolidated. However, it is important to realize that such an extension will mean that you will be making payments for a longer period of time
However, there are no prepayment penalties for a consolidated student loan so you always have the option of increasing your payments to pay off the loan sooner.
6Finding a Consolidation Loan
Finding available consolidated student loans can be done through any credit union or bank that takes part in the Federal Family Education Loan Program, or any other institution that is involved with the US Department of Education. For both of these student loan consolidation sources, the terms and conditions of the loan are generally similar, however you should still confirm the details with the lenders currently holding your loans. For persons who had obtained all their student loans from a single lender, consolidation may only be done with that particular lender.
Consolidation of student loans can only be done once (unless you return to school). Because of this, it is important to obtain the best deal right from the start. The interest rate you can get will likely be the same from all lenders. However, some lenders may provide you with benefits like future rate reductions based on on-time payments or a reduction based on having the payments deducted directly from your checking account.
7When to Consolidate Your Student Loans
Student loans can be consolidated either during the six-month grace period after you graduate or once you have started making loan repayments. It is possible to get a lower interest rate if you do the consolidation within the duration of your grace period, however if you do this you will lose the remainder of the grace period. The procedure for loan consolidation takes an average of 30-45 days to complete.
8Consolidating Student Loans as a Couple
Consolidated student loans for couples is not recommended for two reasons:
- Both spouses will remain responsible for loan repayment regardless of future separation or divorce.
- If there is need to defer loan payment the deferment criteria will have to be met by both persons.
For more information about consolidated student loans, check out the the US Department of Education’s loan consolidation site at www.loanconsolidation.ed.gov.
