Consolidating private and federal loans
Today we will look at the factors that go into the decision, and the circumstances in which it works. Education Lenders The following education lenders will consolidate private education loans. This number does not change as interest rates drop, no does it change if you have a great income or credit score. You should not consolidate your federal student loans together with your private education loans. Since most private education loans do not compete on price, a private consolidation loan is merely replacing one or more private education loans with another.
The first is the public interest student loan forgiveness. If you have the credit score and income to consolidate, look at it as an insurance question. Nevertheless, there are several options for refinancing private education loans.
Also, since the consolidation resets the term of the loan, this may reduce the monthly payment at a cost, of course, of increasing the total interest paid over the lifetime of the loan. Consolidating your federal loans into a private loan means that the federal loan perks are forever gone. The low interest rates on federal consolidation loans are not available to private education loans.
When evaluating a private consolidation loan, ask whether the interest rate is fixed or variable, whether there are any fees, and whether there are prepayment penalties. They should be consolidated separately, as the federal consolidation loans offer superior benefits and lower interest rates for consolidating federal student loans. So the main benefit of such a consolidation is obtaining a single monthly payment. If your private education loan has a variable interest rate, you might consider using a fixed rate home equity loan to pay off the private education loan, effectively locking in the interest rate. This means that if you have federal debt, you are protected in the event of an extended job loss.
You can also try talking to the current holder of your loans, to see if they'll reduce the interest rate on your loans rather than lose your loans to another lender. Because of these facts, private consolation of federal loans has great appeal. For example, if you've graduated and now have a good job and have been building a good credit history, your credit score may have improved. If your credit score has increased by points or more, you may be able to get a lower interest rate by consolidating your debt with another lender. However, consolidating your federal loans into a private loan is a huge decision.
The best part about these repayment plans is that they are also eligible for forgiveness. These are private consolidation programs, so the interest rates are dictated by the lender, not the government. Under this program, if you make timely payments on an eligible plan for ten years, your student loans are forgiven.
Private Student Loan Consolidation
If you read the previous section and thought those programs sound great, but unlikely to ever help you, private consolidation might be for you. There may be additional fees charged for originating these loans. For some it could be worth hundreds of dollars in their pocket each month, and a savings of thousands of dollars in interest over the life of the loan.
Obviously nobody plans on losing their job, but if you have any concerns about your long term employment outlook, having the federal protections in your back pocket is a good idea. If you think that either of these programs could realistically be a part of your future, consolidation of your federal loans into private loans is probably ill advised. Home Equity Loans Private education loans tend to have interest rates that are in the same ballpark as home equity loans.
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