When applying for a student loan at the time of your college applications, you are faced with two options, federal or private loans. This decision made at the cusp of adulthood has more profound effects on your future than you realize.
Federal Student loans are those provided by Government funded institutions whereas private loans are provided by lending institutions such as banks.
Chances are you have been paying off some of the interest during the years of your study but most student loans do not require repayment until after graduation. That is when the panic starts settling in.
Federal Student Loan Consolidation
At this point, you may be thinking of ways to ease your current debt situation and somehow reduce the major chunk of money that goes to the lender every month. Student loan consolidation is a way of out of the situation. if you had obtained private loans for college, then you’ll have to opt for private loan consolidation whereas a federal loan will require federal loan consolidation.
Both loan consolidations are evaluated differently. If you have a federal loan then you’ll be subject to an interest rate as set by the federal government.
In case you have multiple federal student loans then the federal lending institution will compute the average interest on all other loans. The government however has also put a cap on the maximum interest rats that can be charged to a student. This means that no matter how high you individual interest rtes are thy will never exceed 8.5%.
Variable Rates
As of 2006, the government announced that the interest rate on the loan may fluctuate. This means that the amount of payment will vary every six months according to the announced rate by the government.
Types of Loans
There are a multitude of loans that are provided by h federal government but not all of them are eligible for consolidation. This means that you need to determine whether or not the loan you’ve obtained can be successfully consolidated. Federal student loans which are eligible for consolidation include:
- Direct PLUS Loans
- Health Education Assistance Loans
- Federal Nursing Loans
- Subsidized Federal Stafford Loans
- Direct Unsubsidized Loans
- Federal Perkins Loans
- Unsubsidized Federal Stafford Loans
- SLS (Supplemental Loans for Students)
- PLUS loans from the FFEL (Federal Family Education Loan) Program
- Direct Subsidized Loans
If your loan falls into any one of the abovementioned categories then you are eligible to receive a consolidated loan.
Next Steps
So you’ve made the decision to consolidate your student loans. This means that the next step is to reach out to these authorities in the most effective manner. The first thing to do is to collect all information you have regarding all the loans you have accumulated so far. This includes all debts, even those other than the student loan and the names of the lenders that have forwarded you the credit. Specify the interest rates of all the loans and the length of repayment.
In addition, you may want to consider the benefits received from the other lenders before making a decision. Once your application has progressed, make sure to ask questions during the process to get an expert opinion.
Sources
https://financialaid.tamu.edu/types/loans/loan_consolidation.aspx
http://www.bankrate.com/finance/debt/consolidating-student-loans-1.aspx
http://www.loans.ucla.edu/repayment/loanconsolidation.html
