Student Loan Consolidation – How does it Work?

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Student Loan Consolidation – How does it Work? Student loans are
a great source of financial aid for students who need help
paying for their education. Unfortunately, students often leave
college with burdensome debt. In addition, they often have
multiple loans from different lenders, meaning they are writing
more than one loan repayment check each month. The solution to
this problem is loan consolidation.

What is loan consolidation? Loan consolidation means bundling
all your student loans into a single loan with one lender and
one repayment plan. You can think of loan consolidation as akin
to refinancing a home mortgage. When you consolidate your
student loans, the balances of your existing student loans are
paid off, with the total balance rolling over into one
consolidated loan. The end result is that you have only one
student loan to pay on.

Both students and their parents can consolidate loans.

Should I consolidate my loans? Loan consolidation offers many
benefits:

-Locks in a fixed, usually lower, interest rate for the term of
your loan, potentially saving you thousands of dollars
(depending on the interest rates of your original loans) -Lowers
your monthly payment -Combines your student loan payments into
one monthly bill

In addition, consolidated loans have flexible repayment options
and no fees, charges, or prepayment penalties. There are also no
credit checks or co-signers required.

You should consider consolidating your loans if the
consolidation loan would have a lower interest rate than your
current loans, particularly if you are having trouble making you
monthly payments. However, if you are close to paying off your
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 is 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 loanconsolidation.ed.gov 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 interest rate you get and whether you choose to
extend your repayment plan. According to Sallie Mae, the leading
provider of student loans in the United States, consolidating
student loans can reduce monthly payments by up to 54 percent.
However, the only way to reduce your payment this much is to
extend your repayment plan. You typically have 10 years to repay
student loans, but, depending on the amount you’re
consolidating, you can extend your repayment plan all the way up
to 30 years. Remember that if you choose to extend your
repayment term, it will take longer to pay off your overall debt
and you’ll pay more in interest. There are no preypayment
penalties, so you can always choose to pay off the loan early.

Am I eligible to consolidate my loans? 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 your
loans any time during your 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.

This article is distributed by NextStudent. At NextStudent, we
believe that getting an education is the best investment you can
make, and we’re dedicated to helping you pursue your education
dreams by making college funding as easy as possible. We invite
you to learn more about how to get Student Loan Consolidation at
http://www.NextStudent.com .

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