Consolidating college loan
Since the new interest rate of a Direct Consolidation Loan is the weighted average of the old loans, no money will be saved over the life of the loan. Comparison The following example shows the potential savings that could be achieved by consolidating graduate loans with a lower interest private loan. Only federal student loans are eligible for consolidation.
Since consolidation involves a brand new loan, progress towards student loan forgiveness is reset. You're probably paying too much for your student loans.
With a private consolidation loan, a private lender writes a new loan that pays off the old loans. Even if the borrower can only afford the minimum payment now, he or she may want to save on interest by paying extra later on. Your eligibility for consolidating federal loans is based on the types of federal loans you have, not your income or credit. The basics of federal and private consolidation loans are outlined below. Consolidating Federal and Private Loans Together You may be able to consolidate your private and federal loans together with a private lender who offers combined consolidation.
Borrowers know ahead of time exactly how much they will pay in interest throughout the life of the loan and what their payments will be each month. The following table illustrates how a weighted average works. The way this works is that a spread of percentage points is added or subtracted from the index. In fact, the interest rate is rounded up to the nearest eighth of a percent so the new loan might actually have a slightly higher cost overall. Another important benefit of student loan consolidation is lowering your total monthly payment.
If you have private student loans, you may be able to consolidate those into a single loan, but that will result in a separate monthly payment from your federal student loan payment. When you consolidate your loans, the lender pays off your existing loans and issues you a new loan for the combined amount. Also, consolidation loans typically lead to a longer repayment term which allows for smaller monthly payments. You must agree to certain repayment arrangements for any defaulted loans. The reason for this is that historical data indicates that interest rates will trend upwards.
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