Private Student Loan Consolidation vs Federal Consolidation

2007-03-08 10:33:40

( Financial )



A college education is expensive and not all households can afford it. It is only through grants and student loans that most students manage to get a university education. Most students have a combination of federal and student loans. There is a grace period after graduation after which payment for their accumulated student loans begins.

It is not advisable to consolidate both private and federal student loans into one. If you want to consolidate student loans, consolidate all your private loans into one and your federal loans into another.

There are two types of consolidations for federal student loans. The first type of consolidation is going through banks, credit unions or other lending institutions. This option accepts all eligible loans from the borrower, but not all are required to be consolidated. The second is called Direct Loan consolidation where you go through the federal government to consolidate your loans. The Direct Loan consolidation requires all eligible loans to be consolidated. In both types of consolidation, your monthly repayments dues are determined by your income and the current outstanding balance on your student loans.

Both federal and private student loan consolidation allow students to consolidate once they have defaulted on their loans. Both consolidations do not charge prepayment penalties. There are no credit checks and co-signers are not required when you consolidate student loans. Prepayment is when you pay your outstanding balance in full before your loan period expires. Private student loan consolidation, unlike federal student loans, may charge processing fees.

The interest rate on your newly consolidated loan is almost the same from one lender to another. However, private student loan consolidation may yield more incentives compared to federal consolidation. Most private lenders offer incentives like reduced rates for on-time payments or for paying via an automatic debit arrangement with your bank.


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