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Student Loan Consolidation Rates

Updated on September 14, 2015

Student Loan Consolidation Rates

Are you looking for information on student loan consolidation rates or trying to figure out if this financing option is right for you? The purpose of a consolidation on student loans is to help individuals lower their payments by spreading them out over a longer time period, to make managing monthly bills easier and to hopefully get a better interest rate that is fixed. Determining if consolidating your student loans is in your best interest requires doing a little mathematics, looking over your financial paperwork and making a decision that you can pay a little extra each month over the minimum due to save money in the long run – to save on interest over the years.

Did you know that according to Wikipedia, that student loans average at about 7 percent a year? Be aware that if you are currently in school, student loan consolidation rates will not apply to you. These loans cannot be consolidated while attending classes.

The Department of Education Oversees the Federal Student Loan Consolidation Program

What Determines the Student Loan Consolidation Rates?

Federal student loan consolidation rates are determined by the average of the interest rates on all federal loans. The interest rate is then rounded up 1/8th of one percent. All forms of federal loans are allowed to be combined together; however if you have private student loans then they cannot be consolidated with your federal loans. To be eligible for a student loan consolidation, all loans must be in grace period or in satisfactory payment mode. Payments must be current and if you are currently several months behind or in default, you will need to rehabilitate your loans through one of programs available by the Department of Education. Visit ED.gov to have a representative help you get your loans back on track so that you will then be able to consolidate your student loans.

Consolidated Student Loan Rates are a Simplified Formula

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Calculating Student Loan Consolidation Rates

Gather a pen and a piece of notebook paper and all of your financial records about your student loans. Make a two column list by putting the amount you owe for each federal student loan in the first column and each loan’s interest rate in the second column. Add all of your loan interest rates together and divide by the total of loans that you have. Use the example below for help.

Example: If you have three federal loans and one is 4.5 percent and the other two are 5 percent interest then the weighted average would be formulated by this: 4.5+ 5.0+ 5.0 divided by 3 = 4.83333. The 4.8333 would then be rounded up 1/8th of a percentage to give you your overall fixed interest rate for a consolidation of your federal loans.

Consolidating Your Loans May Mean You Pay More Money Long Term with a Lower Payment

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Student Loan Consolidation Rates - Pros and Cons

There are several advantages of consolidating your student loans. You will only have one payment per month to worry about. This is particularly useful if you have multiple lenders servicing your loans. Another advantage is that your payment is generally lowered. However, this can also be a disadvantage. Even though you now will have a lower payment, you will pay more money in interest in the long run due to a lengthier loan plan. A consolidated student loan plan is generally ten to thirty years but you can cut down the costs paid over the year if you pay extra each month. Another negative aspect to student loan consolidation rates is that your average may go up slightly and your terms can change; therefore, if you had certain loan perks before then you may lose them. Read your loan promissory notes carefully before you consolidate to ensure that you are making the right decision. Once your student loans are consolidated, they cannot be changed – ever.

Only Four Banking Entities Offer Consolidation on Private Student Loans

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Student Loan Consolidation Rates - Do Options for Private Loans Exist?

Options for private student loan consolidation are slim; however, banks like Wells Fargo, Chase, NextStudent and Student Loan Network offer consolidating private student loans. They are currently the only four bank entities that will handle these types of loans for consolidation. Wells Fargo will consolidate private student loans from the amounts of $5,000 all the way up to $100,000. Chase allows individuals who have between $7,500 and $150,000 in private loans to consolidate. Unfortunately, private loans are consolidated under a variable APR based primarily on an individual’s credit FICO score and credit history, unlike federal student loans that have a fixed rate. Chase requires a co-signer to receive a lower interest rate on a private student loan consolidation. Approval generally takes a month and a half to process; therefore, do not delay if you need your loans consolidated immediately.

References Used to Create this Hub: "Student Loan Consolidation Rates"

ChaseStudentLoans.com: “Chase Private Consolidation Loan”

WellsFargo.com: “Wells Fargo Student Loans - Consolidate Private Loans”

ED.gov: “Department of Education”

StudentAid.Edu.gov: “Loan Consolidation”

Wikipedia.com: "Student Loans in the United States"

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