College Loan Consolidation - The Basics
- Date: 2007-03-05 - Word Count: 653
Share This!
When you consolidate your college debt, you simply combine several of your student or parent loans together into one loan from a single lender. As a result, you end up with a single manageable monthly repayment instead of making several monthly repayments at once.
College loan consolidation programs are different from ordinary loans and bring with them a number of important benefits:
- Your credit score will not be analysed
- There is no maximum amount available
- You can potentially postpone repayment
- Debts are forgiven at the death of all borrowers
- Interest paid on college loans could be tax deductible
College Loan Consolidation - The Maths
The interest rate on a consolidation loan 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%.
Here is a typical example:
Jenny has $7,000 worth of Perkins Loans @ 5% and $13,000 worth of Stafford Loans @ 7.5%. When Jenny consolidates her loans into one, her weighted interest average rounded up to the nearest 1/8th of a percent becomes 6.63%. Here is the actual consolidation calculation: (7,000*5% +13,000*7.5%)/7,000+13,000.
When a borrower consolidates a number of loans with different interest rates, the consolidated interest rate is usually lower than the highest of their interest rates, but it is also higher than the lowest of their interest rates. In most cases, if you keep to the same repayment schedule for your consolidated loan as was originally set out in your un-consolidated loans (e.g. 10 years), then the amount of interest you pay over the lifetime of the consolidated loan will be about the same. That been said, there are a number of important benefits that college loan consolidation provides that makes it a very popular financial lending option for graduates.
College Loan Consolidation - The Advantages
One Simple Monthly Repayment - A college borrower can really appreciate the manageability of a consolidated loan when they have multiply loans to manage. Consolidating all the loans into one makes the complexity of multiple loans disappear leaving a borrower with a single monthly repayment.
Alternative Repayment Plans - When you consolidate your college loans, you could potentially take advance of alternative repayment plans which usually become available if the total loan balance is higher. For example, instead of paying back your college consolidation loan in 10 years, you could consider extending the repayment plan to 20 years which will substantially reduce your monthly repayments. In some cases, monthly repayments can go down by as much as 50%. Depending on your circumstances, extending your repayments can make the overall loan more affordable and manageable. However, bear in mind that if you extend your repayments, you will end up paying more interest over the lifetime of the loan. That been said, this option suites many graduates that have other financial commitments and cannot stretch to fully repay the loan in 10 years.
Consolidation resets the clock on deferments and forbearances - In most cases, college loan consolidation resets the 3-year clock on certain deferments and forbearances. As consolidation loan is classed as a new loan, it brings with itself its own set of new deferments and forbearances. This factor is particularly useful for medical students who do not get an in-school deferment during the internship and residency periods.
Consolidating while already in repayment - If you have loans already in repayment then consolidating your loans earlier on could potentially lower your monthly repayments even if you stick to a standard 10 year plan. However, if you are close to the end of the repayment period on your loan, then consolidating may not be the ideal solution.
The benefit of shopping around - If you decide to consolidate your college loans then you can spend time shopping around for the best lender who will give you a higher interest rate discount and better rebates on the fees.
For more information, visit College Loan Consolidation where you will find other useful articles, news and featured college loan consolidation suppliers.
College loan consolidation programs are different from ordinary loans and bring with them a number of important benefits:
- Your credit score will not be analysed
- There is no maximum amount available
- You can potentially postpone repayment
- Debts are forgiven at the death of all borrowers
- Interest paid on college loans could be tax deductible
College Loan Consolidation - The Maths
The interest rate on a consolidation loan 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%.
Here is a typical example:
Jenny has $7,000 worth of Perkins Loans @ 5% and $13,000 worth of Stafford Loans @ 7.5%. When Jenny consolidates her loans into one, her weighted interest average rounded up to the nearest 1/8th of a percent becomes 6.63%. Here is the actual consolidation calculation: (7,000*5% +13,000*7.5%)/7,000+13,000.
When a borrower consolidates a number of loans with different interest rates, the consolidated interest rate is usually lower than the highest of their interest rates, but it is also higher than the lowest of their interest rates. In most cases, if you keep to the same repayment schedule for your consolidated loan as was originally set out in your un-consolidated loans (e.g. 10 years), then the amount of interest you pay over the lifetime of the consolidated loan will be about the same. That been said, there are a number of important benefits that college loan consolidation provides that makes it a very popular financial lending option for graduates.
College Loan Consolidation - The Advantages
One Simple Monthly Repayment - A college borrower can really appreciate the manageability of a consolidated loan when they have multiply loans to manage. Consolidating all the loans into one makes the complexity of multiple loans disappear leaving a borrower with a single monthly repayment.
Alternative Repayment Plans - When you consolidate your college loans, you could potentially take advance of alternative repayment plans which usually become available if the total loan balance is higher. For example, instead of paying back your college consolidation loan in 10 years, you could consider extending the repayment plan to 20 years which will substantially reduce your monthly repayments. In some cases, monthly repayments can go down by as much as 50%. Depending on your circumstances, extending your repayments can make the overall loan more affordable and manageable. However, bear in mind that if you extend your repayments, you will end up paying more interest over the lifetime of the loan. That been said, this option suites many graduates that have other financial commitments and cannot stretch to fully repay the loan in 10 years.
Consolidation resets the clock on deferments and forbearances - In most cases, college loan consolidation resets the 3-year clock on certain deferments and forbearances. As consolidation loan is classed as a new loan, it brings with itself its own set of new deferments and forbearances. This factor is particularly useful for medical students who do not get an in-school deferment during the internship and residency periods.
Consolidating while already in repayment - If you have loans already in repayment then consolidating your loans earlier on could potentially lower your monthly repayments even if you stick to a standard 10 year plan. However, if you are close to the end of the repayment period on your loan, then consolidating may not be the ideal solution.
The benefit of shopping around - If you decide to consolidate your college loans then you can spend time shopping around for the best lender who will give you a higher interest rate discount and better rebates on the fees.
For more information, visit College Loan Consolidation where you will find other useful articles, news and featured college loan consolidation suppliers.
Related Tags: college loan consolidation
Mila Spivak is a freelance writer. She has published a number of articles on healthy eating, exercise and dieting solutions including Meridia. Recently she has also started writing about college loan consolidation and money management. Your Article Search Directory : Find in Articles
Recent articles in this category:
- The Secrets to Getting Low Down Payment Car Insurance
Upon purchase of a new car, there is almost always a requirement to buy an auto insurance policy as - The Wisdom Behind Auto Insurance Comparison Quotes
No one in his right mind would not go for a good deal. In fact, everyone is out on their feet and ru - The Benefits of Auto Insurance Comparisons Florida
Insurance can be expensive. This is something everyone knows about especially in the sunny state of - Auto Insurance Florida: The No-Fault Policy
There are different kinds of car insurance offered by a wide range of providers today. Different sta - Finding the Cheapest Auto Insurance Companies
Everyone is asking and searching for the cheapest auto insurance companies available today. Consider - How do You Compare Private Health Insurance Cover in Australia?
Deciding what is the best and most affordable private health insurance cover can be easy if you take - How Payment Protection Insurance Was Mis-Sold
For over six years the issue of Payment Protection Insurance (PPI) and how it was mis-sold to custom - Finding Quotes For Auto Insurance Online
One of the many concerns when you are shopping for auto insurance is being able to get access to quo - How You Can Find the Best Auto Insurance Online
When it comes to renewing your car insurance you are going to quickly discover that there are a numb - Guidelines For Searching For Auto Insurance Online
The internet can be a great source of discounts and values related to auto insurance. However, many
Most viewed articles in this category:
- Trading Forex With Pivot Points
Forex Pivot Point Trading are used today by Forex Traders and are calculated on the previous days mo - Where To Search For Free Grants
Where do you look for free grants? The search must be thorough or it could be an exercise in futilit - The Connection Between High Blood Pressure and Salt
We are a society of Salt Addicts. It cannot be denied. When you look at the things we do and the pla - Tips For Avoiding HYIP Scams
Before knowing about HYIP Scams, refer to the functioning of HYIP or "High Yield Investment Programs - Getting Credit After Bankruptcy
Consumers do not have to live sans credit following a bankruptcy. By following certain steps consume - Tips For Choosing A Credit Card
Are you looking for that perfect credit card? If so, you may be confused about what exactly to look - Cheap Car Insurance For Teens Online
Many elements determine a car insurance policy. Car insurance companies look at the person's age, hi - What Exactly Is Free Grant Money?
You can apply for free grant money from various government agencies. But where exactly does this mon - Small Business Owners Marketing and Customer Service
Marketing can be time-consuming, but it doesn't have to be hugely expensive now, thanks to the Inter - Apply Online For A Credit Card - How To Choose A Card?
The best type of credit card for you will be dependant on how you intend to use the credit card. Are