How does student loan consolidation work
Fortunately, there are two relatively simple strategies for handling student loan debt for the long term. Consolidation loan borrowers should not be charged origination fees. Click espanol to find a Spanish version of the on-line application. You can indicate this when you apply, and the consolidation servicer will wait to process your application until the appropriate time. You may also lose some options and protections if you consolidate certain federal loans, particularly Perkins loans , into other federal loan programs. Student Loan Consolidation Advertisement Consolidation Loans combine several student or parent loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. Loan consolidation may offer the benefit of a lower monthly payment, extended repayment terms, and potential forgiveness under certain federal loan programs. With just a few exceptions, you get only one chance to consolidate with the government loan programs.
Click espanol to find a Spanish version of the on-line application. Another option for managing student loan debt is refinancing and consolidating with a private lender. However, it is required that borrowers are in good standing with their current federal student loans before a consolidation can be approved. However, by extending the term of a loan the total amount of interest paid over the lifetime of the loan is increased. However, once you consolidate, you lose any remaining grace period. No Cost to Consolidate Aside from a slight increase in the interest rate on the consolidation loan, there is no cost to consolidate your loans. These include extended repayment, graduated repayment, income contingent repayment Direct Loans only and income sensitive repayment FFEL only. The interest rate must not exceed 8. If you have variable rate loans from before July 1, , you may be able to get very significant interest rate reductions by consolidating. However, the interest rate may be greater than 8. Some borrowers may also have the option of extending repayment with a private student loan lender for several years, creating a lower burden on cash flow each month. Consolidation loan borrowers should not be charged origination fees. Also, federal consolidation loans generally have lower interest rates. You do not need to pick an alternate repayment plan. The consolidation loan is treated as a fixed rate loan within the weighted average interest rate formula used to calculate the interest rate on the new consolidation loan. Borrowers with more recent loans may also get a benefit now that interest rates are changing each year. Another common problem is that partial discharge of a joint consolidation loan under any of the discharge programs other than death discharge does not eliminate joint liability for the remaining balance. Students and parents cannot combine their loans through consolidation, since only loans from the same borrower can be consolidated. It is a good idea to do this even if you just think that you might want to use the public service cancellation program. This may be a good idea if you want a single monthly payment. There is never an upfront fee. Don't be fooled if someone tries to suggest that this will save you money by getting you a lower interest rate. You can also consolidate two consolidation loans together. However, in many cases, refinancing to a private lender takes away the benefits of federal student loans, including income-based repayment plans, deferment and forbearance, and eligibility for forgiveness of loan balances in the future. This is most clearly a problem if you consolidate federal loans into a private consolidation loan you would lose the rights associated with federal loans. You should check the interest rates on your loans.
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