Consolidation of Student Loans

By: EconomyWatch Content   Date: 4 December 2009

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Consolidation of student loans allows a borrower to combine all his loans into one new loan, usually with a lower interest rate. It simplifies the repayment and debt management options. Although both federal student loans and private loans can be consolidated together, it is advisable to keep their consolidation separate. A student should first consolidate his federal loans and then choose a separate consolidation of the private loans. This will help one to retain the benefits associated with federal loans.

Federal Student Loan consolidation is backed by the federal government but offered by private lenders. The consolidation of federal loans can be done without a credit check and no co-signor is required. However, consolidation of private student loans is possible only after the credit history of a student has been checked.

Eligibility for Consolidation of Federal Student Loans

A student becomes eligible for consolidating his various federal loans if:

  • He is no longer enrolled in a school or is enrolled for less than half time

  • He is actively repaying the loan or is in the grace period of the loan

  • The total loan amount for consolidation is $10,000 or more

Apart from students, the parents who have taken student loans can also go for consolidation. The parents can opt for consolidation of loans anytime after the disbursement is complete and regardless of the student’s enrollment status in the school.

The following categories of people are eligible for student loan consolidation:

  • Students with federal or private loans

  • Graduate students with GradPlus loans

  • Parents with PLUS loans or private student loans

  • Students with specialty health profession loans 

When is Consolidation of Student Loans Appropriate

A student or a parent should go for consolidation of student loans if:

  • They are finding it difficult to make the monthly payments

  • The interest rate on their loans is higher than the market rate

  • If they want to extend the repayment time of the various loans

  • If they want to do away with multiple payments and club them into one monthly payment

  • They need to improve their credit score


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