When consolidating student education loans, it's important to know what you're getting into first. As with any kind of financial decision, you must do your homework before signing on the filled line. Consolidating student loans is not a difficult process, but there are several foibles in place that you must know before deciding to consolidate your student education loans into one easy to manage loan. This is a list of probably the most important rules and regulations pertaining to student loan consolidation. Make sure you understand all these rules before going through with the consolidation loan.
Student Loan Consolidation is actually Free
Obtaining a student loan consolidation loan is a free process, therefore never pay a fee for consolidating. If the lender is charging an upfront fee to consolidate your student education loans, it's most likely a scam and you should take your business somewhere else. This scam is often referred to as an "advance fee loan scam", and it is relatively common in the student loan consolidation world.
You Cannot Consolidate Whilst Still in School
You may consolidate your student loans only after your own loans enter their grace period, which is six months after graduating or dropping from school. You can also consolidate once repayment of the loans begin, although you should look at consolidating before that point. It may not be beneficial to everyone, but it's definitely worth examining the numbers to see if it would save you money and make your loans simpler to manage.
You Can Only Consolidate Student Loans in Your Name
This guideline seems pretty obvious, but in some cases where the student is married or has their parents' name on the student loans, it may come into play. Students and parents may consolidate their student education loans, but they cannot combine them into one consolidation loan - They should be separate. Same thing holds true for married students who both have education loan debt. As of 2006, married students cannot combine their student loan debt into one consolidation loan - They are able to, however, each have their own consolidation loan.
Student and Graduates May Combine With Any Lender
There are no restrictions that limit which lenders qualify for consolidating student loans, so you may choose whatever lender you desire. This allows you to shop around for the lender with the best rates of interest and incentives. Keep in mind that most lenders require you to possess a minimum balance totaling $7, 500 or sometimes higher.
Any Federal Student Loan is Entitled to Consolidation
Any type of federal student loan can be consolidated, including single student education loans. That being said, you can only consolidate an existing consolidation loan once, but not in every circumstance. In order to reconsolidate a consolidation mortgage, you must add a previously not included student loan to the loan consolidation. In this case, your interest rate would be reconfigured using a formula to weigh the old interest rate with new rate due to the student loan being added to the mix. Please note that a student loan consolidation loan uses a weighted average of all the included student loans to determine the overall interest rate - Reconsolidating in future won't completely reset your interest rate.
Consolidation Loans Offer Longer Repayment Terms
Federal student education loans feature standard 10-year repayment plans. When consolidating student loans, you can extend these terms to 12-30 years based upon how much is owed. As with any loan, though, it's not recommended to increase the terms of the loan, because interest charges will be greater the actual longer the loan exists. It's recommended to pay off the loan as quickly as possible. That being said, extending the consolidation loan repayment plan can help people to better afford the lower payments due to a longer repayment plan.
There's No Prepayment Penalties
You may pay off your education loan consolidation at anytime without any risk of prepayment penalties. I highly recommend paying off the consolidation loan as quickly as possible to avoid some of the interest charges and to relieve yourself of the financial burden as soon as possible. Just make sure that when making additional payments each month, you inform the lending company that the additional amount should go towards the principle of the loan instead of future payments.
Student Loan Consolidation is actually Free
Obtaining a student loan consolidation loan is a free process, therefore never pay a fee for consolidating. If the lender is charging an upfront fee to consolidate your student education loans, it's most likely a scam and you should take your business somewhere else. This scam is often referred to as an "advance fee loan scam", and it is relatively common in the student loan consolidation world.
You Cannot Consolidate Whilst Still in School
You may consolidate your student loans only after your own loans enter their grace period, which is six months after graduating or dropping from school. You can also consolidate once repayment of the loans begin, although you should look at consolidating before that point. It may not be beneficial to everyone, but it's definitely worth examining the numbers to see if it would save you money and make your loans simpler to manage.
You Can Only Consolidate Student Loans in Your Name
This guideline seems pretty obvious, but in some cases where the student is married or has their parents' name on the student loans, it may come into play. Students and parents may consolidate their student education loans, but they cannot combine them into one consolidation loan - They should be separate. Same thing holds true for married students who both have education loan debt. As of 2006, married students cannot combine their student loan debt into one consolidation loan - They are able to, however, each have their own consolidation loan.
Student and Graduates May Combine With Any Lender
There are no restrictions that limit which lenders qualify for consolidating student loans, so you may choose whatever lender you desire. This allows you to shop around for the lender with the best rates of interest and incentives. Keep in mind that most lenders require you to possess a minimum balance totaling $7, 500 or sometimes higher.
Any Federal Student Loan is Entitled to Consolidation
Any type of federal student loan can be consolidated, including single student education loans. That being said, you can only consolidate an existing consolidation loan once, but not in every circumstance. In order to reconsolidate a consolidation mortgage, you must add a previously not included student loan to the loan consolidation. In this case, your interest rate would be reconfigured using a formula to weigh the old interest rate with new rate due to the student loan being added to the mix. Please note that a student loan consolidation loan uses a weighted average of all the included student loans to determine the overall interest rate - Reconsolidating in future won't completely reset your interest rate.
Consolidation Loans Offer Longer Repayment Terms
Federal student education loans feature standard 10-year repayment plans. When consolidating student loans, you can extend these terms to 12-30 years based upon how much is owed. As with any loan, though, it's not recommended to increase the terms of the loan, because interest charges will be greater the actual longer the loan exists. It's recommended to pay off the loan as quickly as possible. That being said, extending the consolidation loan repayment plan can help people to better afford the lower payments due to a longer repayment plan.
There's No Prepayment Penalties
You may pay off your education loan consolidation at anytime without any risk of prepayment penalties. I highly recommend paying off the consolidation loan as quickly as possible to avoid some of the interest charges and to relieve yourself of the financial burden as soon as possible. Just make sure that when making additional payments each month, you inform the lending company that the additional amount should go towards the principle of the loan instead of future payments.