How to Consolidate Student Loans – Federal Versus Private Loan Consolidation
Student loan consolidation can be used by student or parent borrowers to combine their multiple education loans into one loan with one monthly payment. As any student can take either federal or private student loans, he or she can also take a federal or private consolidation loan to make the education debt more manageable.
Both federal and private student loans offer significant benefits, but federal loans offer borrowers many benefits that don’t come with private loans; for instance: low fixed interest rates, income-based repayment plans, loan forgiveness and deferment options. While some private lenders may offer them too, it usually is associated with some strings attached.
For those reasons, every borrower should always exhaust federal student loans options before considering a private loan. The same advice applies to consolidating student loans – always look at federal consolidation loan first and only if you don’t qualify for a federal loan of it is not the right choice for any reason, and then seek a private consolidation loan.
It is important to remember that a federal student consolidation loan can’t include any private loan. Moreover, if you consolidate your federal student loan into a private consolidation loan, you will lose your federal borrower benefits mentioned above (unless you private lender tries hard to get your business and includes them in the offer).
There are important differences between federal and private student loan consolidation.
First of all, with federal student loan consolidation, you will have a fixed interest rate, while private student loan consolidations are credit-based, which means that your consolidation loan rate will not be locked – it will be variable. So, while you will not have to go through credit check in order to apply for a federal consolidation loan, you will need it to secure a private consolidation loan.
Student loan consolidation rates are determined differently for federal and private consolidations. The interest rates for federal loans are set according to a formula established by federal statue. It’s a fixed rate, based on the weighted average of the interest rates on each of your loans at the time you consolidate, rounded up to the nearest 1/8th of a percent and capped at 8.25%.
As private student loans are not funded by the federal government, they are subject to the terms determined by each individual lender (bank, credit union, other financial institution) and the market competition. In private student consolidation loans a borrower’s credit is the primary factor in the variable interest rate offered to the borrower. As the base for setting the consolidation loan interest rate, the private lenders most often use the Prime rate or the 3-month LIBOR Rate, to which they add a margin. That margin varies from lender to lender and is applied according to the borrower’s credit rating.
With regards to the interest rate on the consolidation loan, it’s typical for both federal and private consolidation loan to include 0.25% rate reduction for automated debit payments.
Repayment of federal student consolidation loans begins within 60 days of the disbursement of the loan, with the payback term ranging from 10 to 30 years, depending on the amount of education debt being repaid and on other debts owned, as well as on the repayment option chosen by the borrower. Private student consolidation loans can also have repayment terms of up to 30 years, although they have fewer repayment options. Usually, repayment begins 30 days from the time your private student consolidation loan is funded.
While the most important factors looked at when deciding about how to consolidate student loans are the interest rates, borrower benefits and the terms of repayment, there are also other significant factors, such as: fees or cost to consolidate, prepayment penalties, loan amount limits, customer service, etc.
There are no fees or application costs whatsoever for processing and providing a federal student consolidation loan. It’s against the law to ask for advance (up-front) fees for arranging a federal education loan or consolidating federal education loans. However, some federal education loans (e.g. the Stafford and PLUS Loans) may require some fees, but they are always deducted from the disbursement check. On the other hand, private lenders may charge fees for application and processing private consolidation loans. Some private lenders charge fees as high as 4% of the principal you owe.
Federal consolidation loan programs don’t require a minimum balance to consolidate student loans; some private lenders require a minimum balance before they consider a borrower’s application for consolidation. That amount varies from lender to lender, but usually is between $5,000-$7,500 in US-issued private education loans.
With both federal private consolidations, there are no penalties for prepayment – all payments in excess of scheduled payments will go directly to principal and that will help to repay your consolidation loan faster.
The application process for consolidation of private student loans differs from the federal consolidation. Sometimes applications for private consolidation loans may be easier to complete (often done online or over the phone). However, it’s worth remembering that federal loans usually have lower interest rates, borrower benefits and better repayment terms than private student loans. Moreover, federal applications for both original loans and consolidation loans require FAFSA, so with the federal consolidation, your application is already partly completed.
Watch the video related
A Brief introduction to Debt Consolidation Loans brought to you by www.mydebtfreelife.co.uk
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Tags: Consolidating Student Loans, consolidation, Debt, Federal Student Loan Consolidation, How To Consolidate Student Loans, Loan, Private Student Loan Consolidation, student, Student Loan Consolidation
This entry was posted on Saturday, October 3rd, 2009 at 5:09 am and is filed under Loan. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
October 3rd, 2009 at 5:18 am
Try this first:
The first thing you will need to do is call the three major credit reporting agencies and request a free copy of your credit report.
http://www.equifax.com
http://www.experian.com
http://www.transunion.com
Then once you get those in the mail (7-10 days) there will be a dispute form attached to the reports. Fill those out for every negative account on your report regardless. Fax, mail go online whatever it takes to get those submitted as quickly as possible. Then those companies must answer your dispute within 30 days or it is removed from your credit report completely. So that will eliminate some things, hopefully.
Then make sure you pay all your revolving accounts to below 50% of your credit limits.
Make sure that you make all your payments no more than 20 days from the date it is due.
Good Luck!
October 3rd, 2009 at 5:43 am
Good debt help info!
October 3rd, 2009 at 5:47 am
I really liked your channel and this video. If you need any help getting this video exposed I use a site called tubeviews.(net) It has really helped like 20 of my main videos get to the top in position. Its nice.
that is very awesome i love this
October 3rd, 2009 at 6:54 am
Wells Fargo might be the only one worthwhile these days. Look for ones that have little or no origination fees and have reductions if the money you owe is periodically auto-deposited.
October 3rd, 2009 at 5:47 pm
The best time to consolidate is when interests are starting to get charged to you. (different according to the type of loan you get).
There's no catch, but you need to understand that you'll pay 2 times the loan if you consolidate over a long-time.
October 3rd, 2009 at 11:55 pm
A loan consolidation and a debt consolidation are the same. A bank loans you enough money to pay off credit cards or loans (like a car loan). They group it all into one single loan through them (hence the word "consolidation"). So they take all your outstanding "debt" and put it in one single loan with a fixed monthly payment.
A credit card consolidation can be one of two things:
First – You take a credit card and "transfer" the balances of all your other credit cards onto it. Then you have only one single credit card bill.
Second – A debt consolidation loan where you get a loan through a bank to pay off credit card debt. Sometimes the bank will want you to cancel the cards too. Not always.
Hope this helps!
October 4th, 2009 at 12:12 am
October 4th, 2009 at 2:55 am
All of the banks should be doing that because student loans are protected from bankruptcy. You just need to find a bank with the capital to purchase your loans. Look at midwestern founded banks and some that really specialize in student loans like western union.
October 4th, 2009 at 7:40 am
All of my student loans were through Citibank initially, and last year I consolidated through them. They gave me a 5% interest rate which I think is very reasonable. They have also been very helpful on the phone when I had questions and they have never adjusted my interest rates without informing me first. Their website is http://www.studentloan.com and I would recommend them highly.
October 5th, 2009 at 12:45 am
The federal consolidation loan has a fixed interest rate, based on the weighted average of the interest rates of the student loans being consolidated, excluding Health Education Assistance Loans (HEALs), rounded up to the nearest 0.125% or 8.25%, whichever is less.
The weighted-average interest rate calculation is based on the official interest rates for the student loans being consolidated, exclusive of any borrower benefit or other special rate discounts.
By law, all lenders are required to use the same interest rate formula for federal consolidation loans. Instead, you should consider customer service, flexible repayment options, online account access and applications, reputation and industry experience when selecting a lender.
October 5th, 2009 at 6:18 am
Great video. sums it all up and makes it easy to understand.
October 6th, 2009 at 4:27 am
Your chances are prob pretty good to consolidate federal student loans. Don't consolidate federal student loans in any non-student loan consolidation loans, your interest rate will likely be higher and the interest you pay would no longer be tax deduct able.