Student loan consolidation has great benefits, but it often looks like a complicated
process and scares people. There is nothing to be afraid of, it is actually much
simpler that you think, but to get the most of your consolidation loan you need
to know several important things.
1. How to find the best student consolidation loan rate?
According to FFELP (Federal Family Education Loan Program) guideline lenders
calculate your rate as an average of your existing loans' rates. They are not
allowed to offer you a lower rate and compete for that. So there is really no
point to searching for a lender with the lowest rate.
However, many lenders offer great rate reduction discounts. Usually you get
a discount after making several payments on time or if you set an automatic
payment from your bank account. When using online calculator, most lenders give
you your rate after the discounts. So you will have to be careful and read all
conditions of your new loan to make sure that you are eligible for the benefits.
2. How many times can I consolidate?
Usually you can only consolidate your loans once. That's why it is important
to do your home work and select the right lender the first time. There are two
circumstances when you can reconsolidate your loan. First, if you decide to
study more and take additional loans. Second, if consolidating the first time
not all your previous loans have been captured. This is theoretically possible,
but in practice happens very rarely. Debt consolidating companies are usually
pretty good about including all your outstanding loans in a new loan.
3. What repayment plan to choose?
Most companies offer at least two repayment plans - standard and graduate.
They may be called differently by different lenders, but the general idea is
the same. The standard plan is the most simple - your monthly payments are the
same for the life of your loan. With this plan you usually pay the least amount
of interest.
Graduate plan supposes that at first your monthly payment is lower; it can
be low for 12 or 24 month. But your later payments are higher. This plan is
perfect for graduates who are not sure of finding well paid work straight after
graduation or if you expect other major expenses, like having a baby. By choosing
a graduate plan you will pay more interest that on standard repayment plan,
but the difference is usually not all that much.
There also might be other plans that allow you to make lower monthly payments,
but you will have to pay off your loan longer. These plans are usually the most
costly, because you end up paying much more interest.
4. Does bad credit affect student debt consolidation?
If you have federal student loans and go for a federal loan consolidation program,
your credit history doesn't matter. With private lenders it would be more difficult
to get approved if you have a bad credit. So if you have federal and private
loans, consolidate federal loans first, this will improve your credit score.
If you don't have any federal loans, take steps to improve your credit. The
easies way is to get a credit card and pay it on time fore several months.
5. How to chose the best loan consolidation company?
As you already know, lenders can't really offer your lower rates than others.
So it makes sense to look for a lender that offers the most benefits in rate
reduction. Other points to keep in mind are: if there are any additional fees
for consolidation and if deferment option is available. When you go for a federal
loan consolidation, there are several circumstances when your payments can be
deferred, such as financial hardship, illness or unemployment. If you are going
for a privet lender for your student loan consolidation, it is important that
this lender offers deferment option as well.
Also bear in mind, that you can't always choose the company to consolidate
your student loans. If your took all your loans from the same company, you can
only consolidate with that same lender. However, if you have loans by different
lenders you are free to choose from any lender approved by US government.
Tanya Turner is a publisher of
Loan Consolidation Guide , which provides you with comparison of best
student loan consolidation programs . The Guide also offers tips and advice on how to save the most when consolidating your loans.
