Student Loan Consolidation Center

Okay, to the question – student loan consolidation – how does it work?  First, it is important to understand that millions of students across the country use student loans as a means of financial aid for going to college.  With the money lent, students have the opportunity to get a higher education, which obviously, is great.  However, after the student graduates and heads out into the real world, he or she is suddenly overloaded with debt.

The next thing important to know regarding a student loan consolidation and how does it work is about a consolidation loan in general.  This particular type of loan takes all of a student’s outstanding and unpaid student loans and lumps them into one loan.  The benefits are that a new repayment schedule is formulated and the amount of money going being paid toward the loan each month is less, making finances a little easier to handle.

When a student loan is consolidated, the original loans that still have unpaid balances are paid off.  Another benefit of this is that to creditors and the reporting agencies of the credit bureau, this immediately gives the student good credit, as long as the loan had been paid currently up to that point.  Of course, there are a number of other great benefits associated with a student loan, some that include:

• With all the student loans now rolled into one loan, the student would likely have the interest rate locked in at a lower rate than what he or she was initially paying.  Ultimately, this means the student pays out literally thousands of dollars, putting it into the bank instead
• As mentioned, the monthly payment of a new student loan consolidation is much lower, which eases some of the finance tension often felt after graduation
• Everything is now in one bill, meaning the student is not writing out multiple checks on multiple loans
• Student loan consolidation plans often provide the student with many more options pertaining to repayment, charges, fees, and even penalties on early repayment
• Many times, a student loan consolidation can be secured without the student’s credit being checked or the need for a cosigner

Next in the discussion of student loan consolidation and how does it work we want to talk about interest rates.  Because rates associated with this type of loan are often lower than an original student loan, there is a nice financial savings.  As far as the actual rate attached to a student consolidation loan, this would be determined by taking the average interest rate of all the loans being rolled into the new loan and then rounding that number to one-eighth of 1%.  Although the actual interest rate will vary based on many dynamics, currently, the average is around 8.25%.

As far as the savings impact of a student consolidation loan, this too is determined by looking at a number of factors.  However, Sallie Mae, the top provider of this type of loan, states that the monthly payment on a new loan can actually reduce a student’s monthly output as much as 54%.  Now, for an existing student or someone who has recently graduated and trying to get started, a savings such as this is tremendous.  Keep in mind, to reach this type of savings, the plan would be extended.  In other words, if the other student loans were for three years, it is possible that the student loan consolidation would be for five or more.

Next on our list of student loan consolidation and how does it work, is eligibility.  As with any loan, there are certain qualifying factors, which include:

• All outstanding student loans have to add up to more than $7,500
• A student loan consolidation must be taken out within six months after graduation or the original loans are being paid on
• No other student loan consolidations have been secured
• There is only one lender

One of the exciting aspects of a student loan consolidation is that there are so many loan types that can be rolled into a new loan.  Often, students think they are limited to only a few but in truth, there are multiple loans for students that would qualify to include:

• Auxiliary
• Direct and Federal Consolidation
• Direct and Federal PLUS
• Direct and Unsubsidized
• Disadvantaged Students
• Federal Insured
• Federal Supplemental
• Federal Perkins
• Guaranteed
• Health Education Assistance
• Health Professions
• National Defense
• National Direct
• Nursing
• Stafford