Do you see yourself as hopelessly buried beneath a mountain of student loan debt that just won’t go away?
Are you constantly getting debt collection calls from student loan lenders? And are you trying to juggle already-too-high payments due to multiple student loan creditors?
If you answered “yes” to any of the above questions, chances are you could benefit from consolidating your student loans into a single debt with a single monthly payment. But as all consolidation plans are not the same, you may still be asking, “What are my options for student loan consolidation?”
Federal Direct Consolidation Loans
Most types of federal loans, including the preeminently common Stafford and FFEL loans, qualify for direct loan consolidation. That means combining all of your outstanding federal student loans into one.
There are certainly advantages to having but one federal loan with a single monthly payment. Simplicity and the avoidance of painful late fees is the most obvious benefit.
Also to be considered is the fact that your interest rate will be fixed. That rate will be determined by weighting together the rates on the various loans being consolidated, plus taking into account current interest rates. The result is rounded to the nearest 8th of a percent and can’t be over 8.25%.
You cannot consolidate these loans while still a student, but if you do so within 6 months of graduation, you could get a discounted interest rate.
Other advantages of consolidating federal student loans include:
No credit check is run because your credit score does not affect approval.
There are no early repayment penalties.
Consolidation can make you eligible for certain income-based repayment plans.
Your monthly payments can be lowered significantly, though this may involve extending the loan term out to 20 or 30 years.
Private Student Loan Consolidation
In many cases, private student loans would be refinanced rather than consolidated. But this is not always the case, and consolidating private loans can sometimes be a wise move.
Federal loans have specific consolidation standards attached to them that must be adhered to under federal law. But private lenders have much more leeway. This can work to your advantage in the right circumstances.
It can sometimes be harder to qualify for private student loan consolidation since lenders will look at your credit score, payment history, and other key factors in making the decision. But, if you do qualify, you can often get your interest rate lowered.
A lower rate means less total interest paid over the life of the loan. It may also be possible to get your monthly payment lowered and to pay off your debt faster.
Federal-private Combo Consolidations
Finally, you can sometimes find a private lender who will consolidate both federal and private student loans together. That would mean the lender pays off your loans in full and then you owe the new lender for the total amount.
Normally, the advantage here is the same as for strictly private loan consolidation: a lower interest rate. When you hold both federal and private loans, transforming that complexity into a single loan with a lower interest rate is a major attraction.
Where Do I Turn for Help?
Given the difficulty in weighing all relevant factors and determining which student loan consolidation program (if any), you do well to consult with an expert before making the change.
Luckily, there are many readily available sources of solid advice, such as Student Loan Consolidation Made Easy, that can help you make an informed, beneficial decision.
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