By consolidating your loans, you reduce the risk of missing a payment or defaulting on a loan. The consequence of defaulting on a student loan is severe and should be avoided at all cost. Some of the repayment methods can help you avoid default since they are based on your income level.
A student loan consolidation simplifies your life. The initial step of consolidation is taking an inventory of your student loans. Your loans should be grouped by the type of loan such as Federal or Private. A complete inventory of your Federal student loans is available on the National Student Loan Data System. The website is https://www.nslds.ed.gov/nslds_SA/ . In most cases you should never consolidate federal loans with private student loans. The federal student loan repayment plans offer more flexible payment plans than the private student loans. In addition there are other benefits to federal student loans versus the private loans such as loan forgiveness.
The major advantage to a federal loan consolidation is having only one payment. The new rate will be established by taking a weighted average of your current loans balances and the interest rate per loan. Periodically the government will offer an incentive to lower your rate. There is also a 0.25% interest rate reduction for automatic electronic withdrawal.
Private loan consolidation may be a little more difficult. Many private student loan lenders do not offer a consolidation option. The advantage to consolidating your private loans is locking into a fixed interest rate. Most private student loans have a variable rate. The new rate that will be established will be based on student’s credit score and the co-signer of the new loan.
Parent PLUS loans cannot be consolidated with the student loans. These are separate loans and are under parent’s social security number. If you have multiple PLUS loans for different children, it is recommended that you consolidate them by child.
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