The Basics of Consolidated Loans
The high cost of college tuition can become a significant burden for most families. Student loans are a means that families often use to offset some of the costs associated with college attendance.
With the average cost of a four-year education topping at $100,000 a family can have multiple student loans to meet the costs of higher education. Over time, the amount of money a family owes in student loans can escalate. When you calculate the interest added to the average student loan, the final amount to pay back could be too much. A cost-effective measure to pay back the money borrowed is to have consolidated loans.
A consolidated student loan works similar to a debt consolidated loan. It is basically an opportunity to refinance your existing student loans. The reason people consider consolidated loans vary. A consolidated loan generally results in a lower interest rate and lower payments. This is just one attractive feature of consolidated loans. If you have your student loans consolidated and make your payments on time, your lender will likely reduce your interest rate. When choosing your method of payment, automatic debit may grant you another reduction in interest. When you sign up for automatic debit the lender will automatically request the payment amount from a checking or savings account, or a debit or credit card. Lenders reward individuals who sign up for automatic debit because it usually means they can expect to receive payment.
Just possessing a student loan doesn’t automatically qualify you for consolidation. The main criteria for consolidated loans include the following:
- The student loans are eligible for consolidation
- The individual is not currently a student, or if so is attending school on a less than half-time basis
- The individual is currently repaying the student loans they are considering for consolidation, or they are in the grace period.
Of these criteria, the last two are the easiest to determine. Whether or not a student loan is eligible for consolidation may not be that easy to determine. A loan eligible for a federal consolidated student loan is eligible as long as it is underwritten by the federal government. This covers most federal loans, including Federal Stafford Loan, Federal Perkins Loan, Federal Supplemental Loan for Students (SLS), and Federal Parent Loans for Undergraduate Students (PLUS).
A question that many people ask about consolidation loans is, “Can I refinance my consolidated student loan?” The answer depends on the lender, but in most cases it’s “yes” as long as the loans you want to refinance are subsequent to the already consolidated student loan. Most people want to refinance a consolidated student loan because they marry someone who also has a student loan. Another reason to consider refinancing is if you continue your studies and obtain another student loan. Refinancing a student loan already consolidated is no different than consolidated student loans. When considering the refinance of a student loan already consolidated, you should also shop around for the best interest rate.
The good news about the interest rate for consolidated loans is that they are based on an average of your existing student loans. When you consolidate student loans you can expect at least a 50% or higher cost savings. How high of a cost savings you receive is based on how long you want to extend your payments. Most consolidated student loans are extended for a period of 30 years. If you do not want to incur such a long-term debt, consolidating your student loans may not be suitable for you.
The individual is currently repaying the student loans they are considering for consolidation, or they are in the grace period
March 20th, 2008 at 10:34 am