There are two types of student loan consolidation, and their processes are always confused. The two types of federal and private consolidation. The federal student loan consolidation is a process that brings together multiple federal loans.
The process is carried out by the Department of Education. The process is necessary when you want to sign up for certain repayment programs. Borrowers should, however, note that federal consolidation does not lower your interest rates. It can also reduce the amount you pay monthly by extending the repayment period. You can only combine your federal debts into one payment using this method. All private loans are excluded.
Private consolidation, also referred to as refinancing, is a process you can only do with the help of a private lender. With this type of consolidation, you can combine both federal and private loans into a single loan. When you qualify for this process, you may be able to reduce your interest rate.
Private student loan consolidation involves combining federal and private student loans into one single loan. That means you will be paying a single loan at the end of the month. With this type of consolidation, you can enjoy a new and lower interest rate depending on your financial history.
Your financial history includes your credit score, job history, income, and educational background. If your credit score is above 600, you are likely to qualify for a rate that ranges from 2% to 10%.
If you have the background listed below, you should consider refinancing.
You have made a couple of one-time payments when you left school.
You have a minimum credit score of 690.
You have a stable job.
Even if you don’t have all the above, you have access to a cosigner who qualifies for all that has been mentioned above.
It is worth noting that when you refinance your federal loan, you lose all the consumer protection arrangements that are available to people who go in for federal loans. You will lose the opportunities for loan forgiveness and the chance to tie your loan to your income.
The goal of this type of loan consolidation is to combine your loans into a single loan and to enjoy lower interest rates.
With this type of loan consolidation, you don’t need a high credit score to qualify. This means that you will not be disqualified even if your credit score is low. You can successfully combine your loans into a single payment, but it applies to only federal loans.
Unfortunately, you will not be able to negotiate lower interest rates. It is, however, possible to reduce the monthly payments by extending the repayment period. You should only consider federal student loan consolidation under the following conditions;
When you combine your federal loans, the government clears the full amount for all your federal loans. The debt will be replaced with a single consolidation loan. You are eligible for this type of loan consolidation when you graduate or drop below half-time enrolment, or when you leave school.
The Department of Education does not charge you for consolidating your federal loan. Some companies will offer to help you consolidate at a fee. Since you are trying to save money and clear your debts, avoid these companies. When you consolidate your federal student loans, you will make payments at a new rate. This rate is the weighted average of all the rates for your previous loans. This rate will be rounded to the one-eighth of 1%.
Your loan term will also change. You will now have a minimum loan term of 10 years and a maximum of 30 years. You will be required to commence payment of the new loan within 2 months of a successful consolidation.
You can begin the process at the studentloan.gov website. Check into the site and select “Complete Consolidation Loan Application and Promissory Note.” You are required to complete the process in a single session, and it will take about 30 minutes. Make sure you have all the required documents with you before you begin the process. You can find all of them at the “What do I need?” column. When you have all the documents set, and you are sure you can spare 30 minutes within interruption, you can start.
You will need to enter loans you have and those you don’t have.
You also need to pick a repayment plan. There are two options; choose a plan based your remaining loan amount or tie your loan to your income. People who decide to choose the latter are asked to fill an Income-Driven Repayment Plan Request form in the next section. With the income-driven repayment plan, the government extends the repayment period up to 30 years, unlike standard loans, where the minimum term is 120 months.
The government caps the monthly payment at 15% of your monthly income. That means you will be making lower payments and this will free enough money for other things. If your loan is huge and you want to make smaller monthly payments, you should opt for the income-driven repayment plan.
There are two ways of consolidating your student loan. That is, the private and federal student loan consolidation. They have been discussed above.
If you have several federal and private debts and you will want to simplify them into a single debt, you should consolidate your loans. it makes it easier for you to keep track of your debt since you will now make a single payment.
Yes. You can use the private student loan consolidation process to consolidate both private and federal loans.