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Student Loan Consolidation

American college students normally take out one or more loans during their time of studies. When students are approaching graduation or have just graduated, they start receiving offers from student loan consolidation services. Student Loan Consolidation allows students to combine their loans into one for convenience of repayment.

Consolidation Loans are designed to combine several student or parent loans into one bigger loan in order to pay off the balances on the other loans. Consolidation is available for most federal loans, including Perkins Loans, Stafford Loans, Parent's Loan for Undergraduate Students (PLUS), Federal Insured Student Loans (FISL), Health Professional Student Loans, Nursing Student Loans (NSL), Health Education Assistance Loans (HEAL), National Direct Student Loans, and Auxiliary Loans to Assist Students. In other words, any federal education loan can be consolidated.

Federally funded loans, administered through the US Department of Education's Federal Student Aid programs, are normally the easiest to consolidate. Interest on the federal funded loan is tax deductable. Federal loans also offer an opportunity for students to defer payments if they go back to school. Moreover, there are cases when the loan can be forgiven for certain types of service.

Private Student Loans, administered by lending institutions, are usually provided at higher interest rates than federal loans, and don't have such a variety of advantages as federal loans. Private loans can be either secured or unsecured just like any other loan, and consolidating them may have certain restrictions.

Private and federal loans can be combined to fund students' education. However, if you decide to consolidate your loans, it is important that you do not consolidate these two types together. You are recommended to consolidate all your federal loans first, and after that separately consolidate private student loans. In case you combine the federal and private loans, you will have to take out a single private loan thus losing all the benefits consolidation of your federal loans offers: a lower interest rate, extending the time for loan repayment, reducing your monthly costs, convenience etc.

Therefore, mind that only federal loans qualify to be included in a student's consolidation scheme. Loans which were obtained from private financial institutions, for example, banks and credit unions, do not qualify.

Remember that, like any debt, student loans influence your credit. For example, student loan debt exceeding 8 percent of your income can have a negative effect on your credit in case you want to qualify for some other loans in future.

Consolidation Loans have a fixed interest rate throughout the term of the loan. Repayment on a consolidation loan starts within 60 days of loan disbursement, unless a borrower is eligible for deferment or forbearance.

Federal student loan consolidation has the advantage of lower interest rates and lower monthly payments for students. Students have to make only one convenient monthly payment instead of several payments to various creditors. When you consolidate, you get the opportunity to pay the loans back over a more extended period of time. Also, consolidation reduces the stress of having to pay several different creditors every month. You don't have to pay any upfront fee for consolidating government student loans and there is no credit check.

Among other undeniable advantages of Student Loan Consolidation are a simple loan application process and the absence of penalty for early pay-off of the loan. You can pay off all your federal student loans without incurring a penalty if along with the extra payment you include a letter which states that the payment should be applied to reducing your principal.

Besides standard 10-year repayment, Consolidation Loans may offer four different payment plans: an extended payment plan (up to 30 years), graduated repayment, income contingent repayment, and income sensitive repayment. In most cases, sticking with standard ten-year repayment will be wiser. The benefit of alternate repayment plans may be lower monthly payments, however if you take an extended payment plan, you will end up paying more interest.

Once a year it is possible to change the repayment schedule on your loan. Starting off with standard ten-year repayment on your consolidation loan, you can switch to extended repayment later on, in case it is difficult to afford the payments.

However, it is not always beneficial to consolidate student loans. For the most part, the decision to consolidate should depend on how much you owe, and how much you have already repaid. It isn't always worthwhile to consolidate your student loans since a lot of federal student loans have fairly low interest rates in any case.

Consolidation is not your option if the Consolidated Student Loan rate is higher than the interest rates on your other loans. In case you have already paid off a large portion of your student loans, consolidating may be unwise. It is vital to carefully consider the available options and do all the calculations, including the hidden costs. Sometimes monthly payments may even increase after consolidation. Remember that consolidation should be decided on a case-by-case basis as each individual may have their specific circumstances which should be taken into consideration. For example, it is recommended to avoid consolidating Perkins Loans, as consolidating you are bound to lose some important benefits.

Take time to carefully evaluate the benefits you have with the current lender so that it wouldn't turn into a bad bargain for you. The originating lenders often offer loan discounts, and sometimes they can be bigger than those offered by consolidating lenders. Also, it may work to get some of the benefits of alternate repayment plans without consolidating.

Both student and parent borrowers are eligible to consolidate federal student loans. However, only loans from the same borrower can be consolidated, therefore students and parents cannot combine their loans into one through consolidation.

To be able to consolidate, students must be in the "grace period" of the loan or actively repaying the loan. Loans in default having satisfactory repayment arrangements can also be eligible for consolidating. Students can consolidate if they are no longer enrolled in school, and parents can consolidate PLUS loans at any time.

Shop around to find a lender who offers better discounts or a lower rate, as students and parents are allowed to consolidate their loans with any lender, even though all of their loans could have been taken out from a single lender.

Most consolidation companies will require a minimum loan amount, typically $10,000. Then, some lenders tend to offer consolidation loans for borrowers with loan balances of at least $7,500, while others - for balances of $5,000. The Federal Direct Consolidation Loan program has no minimum balance for consolidation loans at all.

If the loans you are consolidating have different interest rates, the weighted average interest rate will be somewhere in between. It means that though it may be lower than the highest of your interest rates, it will still be higher than the lowest of your interest rates.

It is possible to reconsolidate an existing consolidation loan, but only once. To do that, you should add loans that were not previously consolidated. It is also possible to consolidate two consolidation loans together. There are certain restrictions concerning consolidating a consolidation loan which you should be aware of. One of them, for instance, will limit a borrower's ability to use consolidation to switch lenders.