Understanding Consolidation Loans
A consolidation loan is a type of loan that allows a borrower to combine several individual loans into one new single loan. This can simplify the borrower's paperwork (one loan payment to make instead of several) and may bring additional benefits. For instance, in the federal consolidation program, the borrower can extend repayment from the standard 10-year period to 12, 15, 20 or more years (depending on the amount consolidated). This will lower the monthly payment, but will increase the overall cost of the loan. Some lenders provide additional borrower rewards to offer more savings.
Federal Student Loan Consolidation
Unfortunately, we are unable to show you a comparison of federal consolidation loan offers at this time because of market changes. You still have options, however.
Contact your current lender(s) about restructuring the repayment on your existing loan(s). Federal student loan repayment can be extended and modified in ways to help you attain a more manageable monthly payment.
Consider obtaining a federal consolidation loan from the Department of Education's Direct Loan Program. The interest rate on a federal consolidation loan is fixed, and the length of a federal consolidation loan can be extended up to 30 years which can also help lower the amount of your monthly payments. The interest rate for a Direct Consolidation Loan is the weighted average of the interest rates on the loans being consolidated, rounded to the nearest higher one-eighth of one percent. Use the calculator at the Department of Education's Direct Loan Program site to help you estimate.
Private Student Loan Consolidation
SimpleTuition has partnered with Wells Fargo to offer our users a private consolidation loan option. Learn more. Other lenders may also offer this service.
Consolidation of private student loans is a relatively new option, and many lenders are still fine-tuning offerings. Make sure to do your homework before consolidating your private student loans - be aware of prepayment penalties and monthly payment rates that start out attractively low but increase over time.
Student loan consolidation has grown significantly during the last several years. Students and their families have had to take on more financial burden due to a combination of steep increases in tuition. Put another way, this new era is being called “debt for diploma.” In turn, loan consolidation has become such a viable and necessary option.
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