You might have heard a lot about student loan consolidation, but what is it really about? How can this help you ease your burden? Are there any disadvantages associated with applying for such? This article aims to shed light on these queries and help students, as well as their parents, on how to go about this whole process.
Loan consolidation means merging all your student loans into a single loan which has one repayment plan and is held by a single lender. You can have your current lender consolidate all the loans for you or have a different lender take care of this for you, depending on the terms and situation. A couple of lenders require the borrowers to have a least possible debt of $7,000 in student loans. A student that has completed their given educational program or close out education in their given program.
Another requirement for a student to participate is to have an eligible federal loan. However, it is not possible for private and federal loans to be consolidated together. A lot of limitations and standard procedures are placed upon this loan option, and these must be met for a student to make the cut. Students are advised to visit the National Student Loan Data System to look up into their credit history prior to making a decision relative to this process.
There are a lot of benefits associated with consolidating your student loans. Consolidation, for one, provides a fixed interest rate, and the borrower makes a single monthly payment to only one lender. Therefore, you will never miss out on a payment and you will only keep track of one bill. The interest rate is determined by obtaining the numerical mean of the interest rate of all the loans being consolidated and rounding up to the next one-eighth of one percent. The maximum interest rate is 8.25 percent (to take a look at your interest rate, you can visit loanconsolidation.ed.gov for an online calculator that will do all the calculation for you).
How much you save by consolidating loans is subject to what interest rate you secured and in the event that you choose to extend your repayment plan. It is said that consolidating student loans can reduce your monthly payments by up to 54 percent. On the other hand, in order to reduce your payment this much is to extend the repayment plan. You actually have a minimum of 10 years to repay student loans, however you can extend your repayment plan up to 30 years depending on the tidy sum that you are consolidating. Keep in mind that if you decide to extend your repayment term, you will be repaying the loans for a longer period of time. Not to mention, an interest perk up might occur over an extended period of time. This increased interest rate could cause your overall balance to zoom its way by thousands of dollars, depending on your status. Good thing there are no prepayment penalties, so you can always choose to pay off your debts early.
When taking care of student loans, loan consolidation or choosing a lender it's indispensable to search high and low. You need to understand how the process works, and conceive the best decision based on the situation. If you are hesitant about a specific lender, you are encouraged to contact the Department of Education.
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