How does Student Loan Consolidation work?

Student loans are a source of financial aid for students who need help to pay for their education. Unfortunately, students are often burdened with debt. In addition, they often have multiple loans from different lenders, this means they write more than one loan repayment check each month. To solve this problem is consolidation loan.
What is loan consolidation?

Loan consolidation means bundling all student loan into one loan with one lender and one repayment plan. Think of it as similar to a consolidation loan with mortgage refinancing. When you combine student loans, means the balance of the existing student loans paid off, with a total balance rolling over into one consolidated loan. The end result is that you only have one loan to pay.

Loan consolidation offers many benefits:

In addition, consolidated loans have flexible payment options and no extra costs, or prepayment penalties. There was also no credit checks or the required co-signatories.

You should consider consolidating your loans if the consolidation loan has a lower interest rate than your current loan, especially if you have trouble doing your monthly payment. However, if approaching the repayment of existing loans, consolidation may not be worth it.

How will the interest rate for the consolidated loan be?

The interest rate for your consolidated loan calculated by averaging the interest rate of all the loans being consolidated and then rounding up to the next one-eighth of one percent. The maximum interest rate is 8.25 percent.

To figure your interest rate, visit for an online calculator that will do the math for you.

How much can I save?

How much you save by consolidating loans depends on what you get and whether you choose to extend your payment plan. According to Sallie Mae, a leading provider of student loans in the United States, consolidating student loans can reduce monthly payments up to 54 percent. However, the only way to reduce your payment this much is to extend your payment plan. You usually have 10 years to pay off student loans, but, depending on the amount you consolidate, you can extend the repayment plan of up to 30 years. Remember if you choose to extend your payment term, it will take longer to pay off the entire debt and you'll pay more interest. No preypayment penalty, so you can always choose to pay off the loan early.

In order to consolidate your loans, you must meet the following criteria:

* You are in your six-month grace period following graduation or you have started repaying your loans
* You have eligible loans totaling over $7,500
* You have more than one lender
* You have not already consolidated your student loans, or since consolidation you have gone back to school and acquired new student loans

The following types of loans can be consolidated:

* Direct Subsidized and Unsubsidized Loans
* Federal Subsidized and Unsubsidized Federal Stafford Loans
* Direct PLUS Loans and Federal PLUS Loans
* Direct Consolidation Loans and Federal Consolidation Loans
* Guaranteed Student Loans
* Federal Insured Student Loans
* Federal Supplemental Loans for Students
* Auxiliary Loans to Assist Students
* Federal Perkins Loans
* National Direct Student Loans
* National Defense Student Loans
* Health Education Assistance Loans
* Health Professions Student Loans
* Loans for Disadvantaged Students
* Nursing Student Loans

Where can I get a consolidation loan?

You can consolidate your loans through any bank or credit union that participates in the Federal Family Education Loan Program, or directly from the U.S. Department of Education. The loan terms and conditions are generally the same, regardless of where you consolidate. You may want to check first with the lenders that hold your current loans.

If all your loans are with one lender, you must consolidate with that lender.

If you decide to consolidate your student loans, remember that you can only do so once unless you go back to school and take out more loans. Therefore, you will want to make sure you get the best deal the first time. The interest rate will be the same from all lenders, but some lenders may offer future rate discounts for prompt payment and a discount for having monthly payments directly debited from your account.

Can my spouse and I consolidate our loans together?

You can consolidate your loans together, but it is not a good idea for a couple reasons:

* Both of you will always be responsible to repay the loan, even if you later separate or divorce
* If you need to defer payment on the loan, both of you will have to meet the deferment criteria

When should I consolidate my loans?

You can consolidate loans student at any time during six-month grace period or after you have started repaying your loans. If you consolidate during your grace period, you may be able to get a lower interest rate. However, since you will lose the rest of the grace period, it is a good idea to wait until the fifth month of the grace period before consolidating. The consolidation process usually takes 30-45 days.

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