Student Loan Consolidation Interest Rates – What You Should Know
The drop in interest rates has made considering student loan consolidation interest rates more attractive. Students may be paying larger monthly payments on loans and need to lower the payments. Or, they may have several separate loans that are paid to different lenders each month with varying interest rates. With almost eight percent of students carrying an average $10,000 loan, there can be many reasons to want to consolidate.
When one has federal education loans student loan consolidation interest rates are very straightforward. The method for setting the interest rate on these loans is established and the regulations are very strict. However, the rates vary greatly on private education loans and are calculated with many factors included. When one is consolidating student loans they will want to consolidate their federal education loans separately from their private education loans to take advantage of the benefits available.
When consolidating a student loan the government takes the interest average of all the loans and rounds up to the closest one-eighth percent. The interest rate will be between the highest and lowest interest that is currently paid to a cap of 8 1/4%.
Students who have PLUS loans often choose to take advantage of the PLUS loan loophole. When a student gets a PLUS student loan the cap on the loan is eight and one-half percent. But, if when consolidated, the cap is eight and one-forth percent. A person can save one-fourth percent by consolidating the loan.
Calculations for private education loans are based on the prime interest rate or LIBOR and the margin for the borrower and co-signer. The margin is the credit score that a person has. In addition, there is an origination fee that is usually between one and five percent which is added to the loan. This is why is is important to compare lenders and the rates that they will charge for consolidation.
Included in the total loan of a private education consolidation will be any deferred interest from the original loans. Lenders capitalize the deferred interest of the original loan and add it. In addition any money that must be paid back to the original lender, such as discounts that were given for getting the loan, are also added to the total loan.
Consolidating student loans will extend the repayment period of the loan and lower one’s monthly payment. It will also allow an individual to make one payment to a single lender for their education loan. But, it is important to talk to a professional about the many student consolidation interest rates that are available when finding a private lender. In some cases a person’s interest rate will not be lowered enough by consolidation to make the extended payments of a loan worthwhile. By doing research and finding the best rates a person can significantly lower their payments and have one interest rate that will offset the higher rates that were being paid previously.
Shopping for the lowest student loan consolidation rate? Need undergraduate student loans for your tuition?
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