Student Loan Consolidation

Welcome to our Student Loan Consolidation mini website. Here we provide information to the student borrower who is thinking about student loan consolidation. Here you will also find a list of resources you can use for consolidating your student loans, along with current student loan news.

Here you will also find a Book Store, consisting of books on how to become debt free and college financing. Browse our book store to learn more about how to become and stay debt free.

Why the need for another site on student loan consolidation? This site was put together to clear up some of the misconceptions about student loan consolidation and to provide a clear listing of advantages to consolidating student loans.

One of the major misconceptions that seems to be floating around the Internet is that by consolidating your student loans, you can automatically save on the total interest due on the loan. Many loan companies out there want you to believe this. If the interest rate is not expected to go up on July 1, this is simply not true. Lets look at some facts about student loan consolidation. Lets first examine how the interest is determined for a student loan consolidation.

The interest for student loan consolidation is determined by taking the weighted mean interest from your various loans and then rounded up to the nearest 1/8 of a percent or .125%. Lets look at an example of this. Lets say you have two loans that you want to consolidate. One loan is $5,000 at 5% and the other loan is $10,000 at 6.8%. The formula for the weighted mean here would be as follows: ( symbol * means multiply)

$5,000 * 5.0% + $10,000 * 6.8%
———————————————————	= 6.2%
$5,000 + $10,000

The weighted mean here is 6.2%. To round up to the nearest 1/8 percent gives you 6.25%.

The new interest rate for the consolidated loan will always be between the highest and the lowest interest rate for the various loans that you have, capped off at 8.25%. Lets continue along this line of thinking and look at a direct comparison in terms of interest paid out for consolidating compared to not consolidating.

In the example given above on a 10 year term, $10,000 at 6.8% has a monthly payment of $115.08 and total interest paid of $3,809.66, $5,000 at 5.0% has a monthly payment of $53.03 and total interest paid of $1,364.03. If you add these, you obtain a total monthly payment of $168.11 and a total interest paid of $5,173.69. Using the weighted average, $15,000 at 6.2% has a monthly payment of $168.04 and a total interest paid of $5,165.01. As you can see the total interest paid is about the same.

Actually, when you consolidate, the interest rate is rounded up to the nearest 1/8th of a point, so $15,000 at 6.25% has monthly payments of $168.42 and total interest of $5,210.42, which results in a slight increase. Of course the principle of the loan that you have to pay back does not change regardless of the scenario.

So therefore if you do not really save on the total interest paid out, what are the advantages to student loan consolidation. It turns out that student loan consolidation is beneficial to the borrower if it is done properly. Don’t be fooled if someone tries to suggest that student loan consolidation will automatically save you money by providing to you a lower interest rate. So how can student loan consolidation be beneficial to the borrower.

If the interest rates on your student loans are variable and the interest rate is expected to go up, you can consolidate and lock in a lower interest rate before the rate hike for the consolidated loan. And as a matter of fact this is what many borrowers did prior to June 30th 2006. After June 30th, 2006, the interest rates on Stafford and PLUS loans (Parent Loans for Undergraduate Students) went up. The rates on these loans change annually on July 1. If rates are not expected to increase, then from an interest perspective, there is no advantage to student loan consolidation. If the interest rate is expected to go up on July 1, then you would be wise to consolidate your student loans in order to lock in a relatively lower interest rate. Lets look at a complete list of the advantages to student loan consolidation.

Student Loan Consolidation - Advantages

• As stated, if the interest rate on variable interest student loans is expected to go up, it would be advantageous to consolidate and lock in a lower interest rate. The interest rate for a consolidated student loan is fixed for the life of the loan.
• You can lower your monthly payment by extending the term of the consolidated loan. The typical repayment period on federal student loans is ten years. A consolidated student loan can extend further then that which reduces the monthly payment. Keep in mind that extending the period can result in a net increase in terms of total repayment. Total amount of interest paid increases with a longer term loan.
• No cost, fees, or credit checks to consolidate.
• It is common for students to have many loans and therefore many payments are needed per month. A student loan consolidation reduces your payments to one simple payment.

In theory, a student loan consolidation works like a mortgage refinance. In a mortgage refinance, the principle objective is to lock in lower interest rate. In a mortgage refinance, if the current interest rate is low and you have a higher interest rate loan or you have a undesirable variable interest rate loan, locking into a lower interest rate is beneficial. A mortgage refinance is similar to a student loan consolidation in that in both cases, you are obtaining one loan to pay off another loan, with the objective being to produce better terms for the new loan.

Also, a student loan consolidation is to a certain degree similar to a debt consolidation. In a debt consolidation, you acquire one loan to pay off another debt. But this is where the similarity stops. Usually debt consolidation involves obtaining one loan in order to pay off credit card debt. In a debt consolidation, the terms of the new loan mean a lower interest rate simply because the loan is collateralized with an individuals home or property. Because the lender has the home as collateral, the lender is taking less risk, which results in a lower interest rate.

But for a student loan consolidation, you do not need to collateralized the new loan. For the student federal loan, the interest is set by the federal government and can change every July 1st. If the interest is expected to go up, consolidate your student loans and lock in a relatively lower interest.

So as you can see, obtaining one loan in order to pay off another loan is a common financial strategy for acquiring better terms with regards to repayment. Student loan consolidation is simply this type of strategy.

Student Loan Consolidation - Eligibility

What loans can be consolidated? Most federal student loans can be consolidated with most lenders. These include subsidized and unsubsidized Direct and FFEL Stafford Loans, SLS, Federal Perkins Loans, Federal Nursing Loans, and Health Education Assistance Loans. PLUS Loan borrowers (parent and graduate/professional degree students) can also consolidate their loans. For a complete list of federal loans which can be consolidated, call the Direct Loan Origination Center’s Consolidation Department if you’re applying for a Direct Consolidation Loan at 1-800-557-7392 or go to their website at
loanconsolidation.ed.gov.

If your lender does not offer a student loan consolidation, or the terms of the consolidated loan offered by your lender are not acceptable to you, you can apply for student loan consolidation through the federal government’s Federal Direct Consolidation Loan Program.

Contact the participating FFEL lender if you’re applying for a FFEL Consolidation Loan. Some lenders also allow for the consolidation of personal education loans. Most lenders require at least a loan balance of $7500. A few will drop down to $5,000. The Federal Direct Consolidation Loan Program has no minimum loan balance required.

Student Loan Consolidation - Sources for Consolidating

Remember, most lenders can consolidate, the following are popular online sources for student loan consolidation.

Student Loan Consolidation - NetDebt-Online Debt Solutions

Student Loan Consolidation - Federal Direct Consolidation Loan Program
Student Loan Consolidation - NextStudent Inc.
Student Loan Consolidation - StudentLoanConsolidator.com
Student Loan Consolidation - Sallie Mae
Student Loan Consolidation - EdFed
Student Loan Consolidation - Student Loan Solutions
Student Loan Consolidation - ScholarPoint Financial
Student Loan Consolidation - H.E.L.P.
Student Loan Consolidation - Nelnet
Student Loan Consolidation - Federal Education Services
Student Loan Consolidation - Studentaidcenters.org
Student Loan Consolidation - Student Assistance Foundation
Student Loan Consolidation - Fundamental Financial
Student Loan Consolidation - Law School Loans
Student Loan Consolidation - Graduate Loan Associates
Student Loan Consolidation - StudentLoanConsolidation.com

Student Loan Consolidation - Conclusion

Student loan consolidation is simply one of the financial strategies for acquiring better terms of repayment. Student loan consolidation involves obtaining one loan in order to pay off your several current student loans. Obtaining one loan to pay off another loan or loans, is a common financial strategy when trying to achieve better terms for the new loan.

Student loan consolidation has several advantages. But the wise student should realize that you may not automatically lock in a lower interest rate for your consolidated loan. If the interest rate is expected to go up, then you would be wise to consolidate your student loans before the rate goes up. July 1st is the annual time for rate adjustment on variable interest federal student loans. As this time approaches every year, the prudent borrower should investigate and learn what the new interest rate will be. If the rate is expected to go up, you would be wise to consolidate.

Another advantage, or disadvantage of student loan consolidation, depending on your perspective, is that you can extend the terms of the loan in order to reduce the monthly payments. Some borrowers prefer to get the loan paid off sooner, while others prefer to reduce the monthly payment by extending the term of the loan. Student loan consolidation is a viable option for the consolidating of federal student loans. The borrower needs to make sure there is a complete understanding of the repayment plan for the loan, and if it appears advantageous, student loan consolidation can be considered.

The following is the most current news about student loan consolidation and general news about student loans. Refer to our news component often in order to keep up with what is going on in terms of expected interest rate hikes.