Student Loan Consolidation, also called a Student Consolidation Loan, combines several student or parent loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. Consolidation loans are available for most federal loans, including FFELP (Stafford, PLUS and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans and Direct loans. Some lenders offer consolidation loans for private loans as well.

How It Works

Consolidation loans often reduce the size of the monthly payment by extending the term of the loan beyond the 10-year repayment plan that is standard with federal loans. Depending on the loan amount, the term of the loan can be extended from 12 to 30 years. (10 years for less than $7,500; 12 years for $7,500 to $10,000; 15 years for $10,000 to $20,000; 20 years for $20,000 to $40,000; 25 years for $40,000 to $60,000; and 30 years for $60,000 and above.) The reduced monthly payment may make the loan easier to repay for some borrowers. However, by extending the term of a loan the total amount of interest paid is increased.

In certain circumstances (for example, when one or more of the loans was being repaid in less than 10 years because of minimum payment requirements), a consolidation loan may decrease the monthly payment without extending the overall loan term beyond 10 years. In effect, the shorter-term loan is being extended to 10 years. The total amount of interest paid will increase unless you continue to make the same monthly payment as before, in which case the total amount of interest paid will decrease.

The interest rate on consolidation loans is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a percent and capped at 8.25%.

If a student consolidates their loans before they enter repayment, the interest rate used is the lower in-school interest rate. Thus, although the rounding up of the weighted average can potentially cost the student as much as 0.12%, a student who consolidates before entering repayment can save as much as 0.6%, a substantial net savings. (The in-school interest rate is 1.7% plus the 91-day treasury bill rate from the last auction in May. During repayment, the interest rate is the 91-day T-bill rate plus 2.3%.) This loophole has been confirmed by an excerpt from the Federal Register and direct correspondence with the US Department of Education. Additional details can be found in the interest rate loophole section.

Some graduate students have found it necessary to consolidate their educational loans when applying for a mortgage on a house.

To find out more about Student Loan Consolidation, check with your lender.

Alternatives

Consolidation simplifies the repayment process but does involve a slight increase in the interest rate. Students who are having trouble making their payments should consider some of the alternate repayment terms provided for federal loans. Income contingent payments, for example, are adjusted to compensate for a lower monthly income. Graduated repayment provides lower payments during the first two years after graduation. Extended repayment allows you to extend the term of the loan without consolidation. Although each of these options increases the total amount of interest paid, the increase is less than that caused by consolidation.

Resources Related to Student Loan Consolidation

Still have questions about Student Loan Consolidation? Have a personal education finance advisor from NextStudent answer all of your questions about student loans and loan consolidation at NextStudent.com

Finding bad credit student loan aids can be a challenge, but it is certainly not out of the question. Obviously it is much easier to find student loans if you have a superior credit rating. You will also find that it is easier to track down the low interest rate loans with a quality credit rating. But with the proper research, you can locate bad credit student loans to help you get through college.

Wondering whether or not credit history will detract you from going to college is a common concern. However, you will be happy to know that it should not stop you from finding assistance so that you can get your college degree. In fact, the most popular student loan, the Stafford loan, automatically assumes that you do not even have a credit rating yet because you are going to college straight from high school.

Another loan that is similar to the Stafford loan is the Perkins loan. It does not even look at credit rating in the qualifications because it assumes that you do not have a credit rating yet. The only way that a credit matter would come up with these loans is if you have been denied from a federally granted student loan in the past.

Aside from these two stout student loans, there are other options to getting bad credit student loan aid. One option is to look into federal funding because they are designed to help make college more accessible. Because of this, the requirements of attaining a loan are much looser than those of banks and other funding companies.

If you are unable to attain a US Department of Education student loan, you may want to consider looking to your parents. If your parents have a better credit rating than you do, you can look into getting a PLUS loan. A PLUS loan is granted to the parents instead of the student and assumes that the parents will pay a certain amount of the student’s college.

The last bad credit student loan option is to look into private lenders. This is especially the case if you are looking to graduate in a field with high earnings such as law or the medical field.

You may have a difficult time receiving a loan big enough from one company to cover all of your costs. In this case, you may need to apply and receive loans from a couple of different loan companies if at all possible. While it can certainly become a hassle, it is important that you know it is possible to receive bad credit student loans.

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