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Student Loan Consolidation – What You Need To Know

For most students, student loans are a necessary part of their financial plan to prepare and pay for their education. Most borrowers will incur both federal and private over the course of their educational experiences. Although these loans serve the same function, they often have different terms and conditions that make each a unique entity to be contended with upon graduation. After leaving college, most borrowers will seek to merge their borrowed money in order to simplify their monthly finances and student loan consolidation programs are the way they make this happen.

Federal vs. Private Student Loan Consolidation Programs: There is a Difference

Since most students will utilize both federal and private student loans to pay for their education, it is important to note that these two credit are incompatible during the consolidation process. By law, federal loans may only be combined with other federal student loans during a consolidation situation.

On the other hand, private loans may be merged with any other type of private loan regardless of what lender originated the credit. Basically this means is that if a borrower has private loans from three different lenders, he may choose to consolidate all of these borrowed money under one of these lenders or another lender of his choosing. Of course, the borrower must meet certain conditions before lenders will consolidate his loans; these requirements vary across lenders so research each student loan consolidation program to choose the right one for your situation.

Federal Loan Consolidation Programs

Obviously, these are controlled by the government and the conditions of consolidation are mandated by federal policies and procedures. The Higher Education Act (H.E.A.) grants student loan consolidation programs for both types of federal: the Federal Family Education Loan (F.F.E.L.) and Direct. Under these programs, loans with varying terms and repayment schedules are transferred into a single loan for the borrower to manage. This new loan typically has a lower interest rate and the repayment period is extended in order to make monthly installments more manageable. In most cases, these attributes produce less defaults and a more controllable student loan debt.

Private Loan Consolidation Programs

Most borrowers have private loans through various lenders and the differing policies often lead to confusion. Employing the use of a private loan consolidation program is a fantastic way to lower monthly loan payments and combine all your loans under one company. Refinancing private loans have the following added benefits:

1. Lower monthly payments – this is usually the main goal a borrower strives for when researching consolidation programs.

2. Interest Rate Reduction – Existing loan holders will not lower interest rates if your credit score has improved over the course of your financial history. Consolidating results in a reduced interest rate, thereby saving the borrower money. Borrowers with lower credit ratings can consolidate with a co-signer to lower their interest rates.

3. No Prepayment Penalties – under most loan consolidation programs for student, any monies received in excess of the scheduled payment is applied directly to principal, thus shorting the life of your loan.

Loan consolidation programs for students are an ideal way for a borrower to more accurately manage his student loan debts and take control of his financial accounts. Employing the use of such programs will save a borrower money while improving his credit profile.

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