subject: Consolidating Student Loans Brings More Disposable Monthly Cash [print this page] A borrower can make the federal student loan consolidation and the private student loan consolidation, but not to combine the federal ones and the private ones into one debt, they have to combine as separate groups.
1. Consolidating Student Loans, The Advantages Of The Federal Ones.
The private and federal students loans consolidations give significant benefits to the borrowers. The advantages of the federal ones versus the private ones are the possibility to the forgiveness, low and fixed interest rates, deferment options and the back payments, which follow your income levels. However some private lenders offer these too.
Many experts see the federal loans as better choices for a student and recommend to try them first. Also, when the graduate ponders consolidating student loans, he or she should first try the federal student loan consolidation.
2. What Happens If You Combine The Federal And Private Ones?
It is not wise to consolidate the private and federal loans into one combined loan. The reason is, that then the borrower of the federal loan will lose the benefits mentioned above. There are important differences, like the fixed and variable interest rates and the fact, that the private loan lender requires the credit information, but the federal lender not.
3. Student Loan Consolidation Interest Rates.
The interest rates for the federal loans will follow the formula established by federal statue. The formula uses a fixed rate, which is the weighted average of the loans at the consolidation time rounded up to the nearest 1/8th of a percent and capped at 8.25%.
The private loans are given by the banks and other financial institutions and the terms follow the competition. This means that the variable interest rate, which the borrower will pay depends on the credit of the borrower. As the base rate the lenders usually use the Prime rate or the 3-month LIBOR Rate and they add their margins on the top of that. The margin varies from lender to lender.
4. Differences In The Repayments.
The federal student loan consolidation begins in 60 days of the disbursement of the loan and the back payment time varies from 10 to 30 years. The back payment of the private student loan begins after 30 days from the date the consolidating has been funded.
5. What About The Fees?
Concerning the federal loans, all kind of upfront fees are against the law. But the private loan lenders may charge the application and processing fees up to 4 % to the owed capital. The federal consolidation programs do not require a minimum balance of the student loans. The private lenders usually use $ 5.000 - $ 7.500 as the minimum sum, before they take the application into consideration.
by: Juhani Tontti
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