Most students today take student loans to cover their education expenses. Loans offer an opportunity especially for those who cannot afford it to complete their college education thereby ensuring a satisfying and lucrative career prospects.
However, student loans become a huge debt for them as they leave college. To cover their entire education costs, most students tend to take multiple loans from more than a couple of lenders and this burdensome debt becomes too much for them to handle. Student loan consolidation offers an excellent solution to this problem.
Loan consolidation option allows students to bundle all their existing student loans into one single loan that is easy to manage. Loan consolidation is similar to the home mortgage refinancing where students benefit from the ease of a single repayment plan.
Loan consolidators pay off the balance of the existing student loans rolling over the entire amount to a single consolidated loan. Student loan consolidation is offered to both parents and students.
Benefits of student loan consolidation
- There are many benefits offered by student loan consolidation. By consolidating all the existing student loans, it is possible to lock in a fixed interest rate that is usually lower than the existing rate. This can offer great savings that depends on the original rate.
- Monthly instalments are lowered making it easier to repay as this loan is offered over a longer duration.
- Offers the ease of paying only one monthly bill.
- Consolidation loans are offered with no extra charges or fees or even pre-payment penalties.
- Most consolidation loans do not require co-signers or credit checks.
Before taking a consolidation loan, it is necessary to first check if you will be making any significant savings in the interest rate as compared to the current loans. Consolidation may not be of use if you have already paid off most of your instalments.
Interest rate calculation for student loan consolidation
Consolidation loan interest rate is calculated based on the average interest rate of all the loans which is then rounded up to one-eighth of one percent. This type of loan charges a maximum of 8.25% interest. You can calculate your consolidation interest rate with the help of online calculators offered on various websites.
Eligibility for student loan consolidation
If you want to consolidate your student loans –
- You must have started your loan repayments or at least must be in the six month grace period after completion of your education
- Your total loan amount must be more than $7500
- You must have borrowed loans from more than one lender
- This must be your first loan consolidation or you must have taken more student loans for further education since the consolidation
Some of the student loans that can be consolidated include –
- Federal Insured Student loans
- Guaranteed Student Loans
- Direct and Federal Consolidation Loans
- Federal and Direct PLUS Loans
- Unsubsidized and Subsidized Federal Stafford Loans
- Unsubsidized and Subsidized Direct Loans
- Nursing Student Loans
- Disadvantaged Student Loans
- Student Loans for Health Professions
Consolidation loans are offered at any credit union or bank that is a part of the Federal Family Education Loan Program or you can directly consolidate loans with the Department of Education.