Consolidating college student loans
The basics of federal and private consolidation loans are outlined below.
The new interest rate would still be equal to the current interest rates in that situation, but it might save money in the future if the variable rates rise (the new fixed rate would stay the same).All types of federal student loans can be consolidated together except a Direct PLUS Loan that was taken out by a parent to help pay for a child’s education (student PLUS loans can still be consolidated).However, private loans can’t be included in a federal consolidation loan.Additionally, certain lenders only offer loans to those who have graduated or have completed a specific type of degree.Federal and private consolidation loans both have unique advantages and drawbacks – not one option is right for everyone.The following table illustrates how a weighted average works.
In this example, there are three students that each have three loans.
Getting a federal consolidation loan isn’t usually considered as “refinancing” since the interest rate of the new loan is equal to the weighted average of the loans being consolidated.
With a private consolidation loan, a private lender writes a new loan that pays off the old loans.
The last section is dedicated to identifying the best private consolidation loans for those with a few different financial profiles.
There are two types of consolidation loans: federal and private, and they each come with distinct advantages and drawbacks.
Some lenders require that the borrower’s debt-to-income ratio be below a certain threshold.