Federal vs. Private Student Loan Consolidation Rates Comparison
Student loan consolidation
Student loan consolidation is the process of combining the different kinds of student loan borrowed into a single loan. The main aim of consolidating the loans is to reduce the monthly repayment amount and to avoid paperwork.
By the completion of graduation, students are normally racked up with several kinds of loans which they need to start repaying once they settle in a job.
The income earned by the borrower is relatively lower than the monthly repayment amount against the several student loans.
Hence, it is recommended to consolidate their loans through which the term of the repayment will increase and their monthly repayment amount will get decreased.
This is a kind of refinancing through which old debts borrowed from different sources are settled with the help of a single consolidated loan amount.
Federal vs. Private Student Loan Consolidation Rate Comparison
It is recommended by all financial advisors not to consolidate federal student loans with private student loans as the government loans have certain privileges like low interest rate, deferment and forbearance period which may get overlapped or lost as per the new consolidated lending institution norms while during the consolidation process.
Under Federal Student loan consolidation, students can combine any FDLP loans and FFEL loans up to the limit of total remaining balance amount to be paid by them on both the loans.
Once consolidation is confirmed by the student, the federal loans obtained already are settled immediately and they are required to pay the new consolidated single loan.
Consolidating Private Student loan is comparatively difficult than federal loans. It is advisable to check clearly whether the interest rate charged on the consolidated loan is variable or fixed. Also, students should confirm with them regarding processing fees and prepayment penalties if any.
Federal Student loan Consolidation Interest Rates
A Federal Consolidated Student loan charges fixed rate of interest for the whole tenure of the loan.
The interest rate charged is based upon the weighted average of the rate of interest on the all kinds of federal loans which are being consolidated by a borrower.
In common, the interest rate will be rounded up to the nearest one-eighth value of 1 and it should not more than 8.25%
Private Student loan Consolidation Interest Rates
Private Student loans consolidation interest rates vary from lender to lender. Hence, it is the responsibility of the students to verify the best option available from the several lending institutions.
Also, private lending institutions charge prepayment penalties and origination fees to consolidate the loans. The most important criterion which students must verify with the consolidator is whether the interest rate chargeable against the loan borrowed is fixed or variable.
