In loan consolidation, an individual takes one large loan to finance the payment of several small loans. The repayment terms of the larger loans are usually more favorable in most cases. It may mean a lower rate of interest, a lower monthly payment or both. If you consolidate private and federal student loans, you make your work easier especially when you choose favorable terms.
Can you consolidate federal and private student loans? There are very few lenders who find it comfortable to consolidate the federal and the private loans. This is because of the difference in the interest rates charged on the two student loans. However, to make a right decision every student needs to be well-accustomed in the topic.
Can You Consolidate Federal Student Loans?
Through direct consolidation loans, borrowers can make one single payment on their federal loans. The payment is made on a fixed interest rate for the whole repayment period in question. The interest rate is based on the average of the other loans. The loans that can be consolidated include the Stafford loan, Plus loans, and Federal Perkins loans.
In fed loans consolidation the borrowers have the option of choosing a repayment period of between 10-30 years. The amount paid on a monthly basis is low. However, the amount paid in the long run is higher than the original loans because of the extension of the repayment period given that the interest is accrued over the whole period. With the gov consolidation loans, some advantages attached to the original federal loans such as the grace period and the forgiveness may be foregone.
After the loans have been combined and paid as one loan, the individual separate student loans cannot be separated again into the consolidated parts. Moreover, consolidation of defaulted loans is prohibited. It can only consolidate the defaulted government backed student loans after you make an agreement with the service provider on how the repayment will be made or you agree to repay the new loan using the repayment methods sanctioned by the government. The repayment for the consolidated loan starts two months after you receive the loan. Your servicer must be on the lookout to give you information on when to make your first payment.
How Can I Consolidate Private Student Loans?
The consolidation of these loans seems more like refinancing. You combine all the private student loans into one large private loan. Only private lenders consolidate the private student loans. This is because these loans do not qualify for direct consolidation loans. The repayment period is between 5 to 30 years. With the consolidation arrangement, your credit score determines the terms of the loan unlike in government debt consolidation loans where they do not look at your credit score. It is upon the lender to determine whether you are eligible for the consolidation plan. Some lenders only accept the arrangement after you have made payment on the individual loans for 24 months. Simply put, different lenders have their different terms. Before you accept to sign papers from a given lender, it is important to do your research on the terms they offer. Since the interest rates offered by these banks also vary, a good selection may lead to getting better rates than opting for another.
These private lenders need to be sure that you will pay your consolidated loan. Therefore, they require that you have a job or that you will be getting into employment in the next few months. This is a guarantee to them that you will pay the loan. The caution is informed by the fact that they do not receive any funding from the government in case a given borrower defaults. Before approval, they look into several other factors too.
The assessment for eligibility and the terms of your loan are pegged on a variety of factors such as your credit score, the amount of income you earn, the amount of debt you have, your employment history as well as your educational background. This procedure may not be necessary when you consolidate student loans government. If you have been paying your existing loans well, you are likely to get better terms. None of the lenders are ever willing to take in a problematic borrower to their program. If you choose an interest rate that is lower than your current one, you are going to save a lot of money. By now we have provided the answer to ‘can you consolidate private loans?’ question.
How to Deal With Federal Vs Private Student Loans
There are several differences between these two student loans. Here you can find some of the vital information regarding both Federal vs private loans.
One advantage of federal loans over private loans is that if you work in the public service, you can be forgiven a portion of your loan depending on your payment plan. The private lenders may not give any forgiveness program.
In summary, you need to be cautious as you consolidate private and federal loans to ensure that you reap the maximum benefits of this move. To do this, opt for a favorable interest rate and a payment period that is comfortable for you.