Student Loan Consolidation

Education Loan Consolidation, also called Students Loan Consolidation, is a term used for a combination of several student or parent loans into one bigger loan from a single money lender, which is then used to settle the balances for the other loans. Most of the federal loans, have consolidation facility available for them. Federal loans, including FFELP (Stafford, PLUS and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Financial loans and Direct lending options are all included in student consolidation loan options. Some lenders offer student loan consolidation services for personal loans as well. One is considered fit for consolidation if one is not currently in school or is enrolled at less than part-time status, one must already be in a process of repaying a prior loan which has no grace period, and one must have a good loan repayment reputation.

How It Functions

Consolidation loans are helpful as they reduce the size of monthly payments to the loans by extending the mortgage loan beyond the 10-year repayment plan which is the basic standard among government loans. The reduced monthly payment plans make it easier for the borrower of the loan to repay it, however, the extended period leads to an increase in the total amount of the loan to be paid. Loan repayment term can be extended from 12 to 30 years, depending upon the amount of the loan.

In some circumstances (for instance, due to minimum repayment, one or more loans are being paid in less than the time prescribed to them), a consolidation loan may decrease the monthly payment without extending the general loan term beyond 12 years. Precisely this means that a shorter-term loan is being extended over 12 years. Therefore, in case we make same monthly payments as before, the total amount of interest paid will increase, leading to the total amount of interest paid decreasing as a whole.

If a student consolidates his or her loans before they enter the repayment plan, the interest rate used will be lower than the in-school interest rate. Thus, if the totaling up of the average for the loan so borrowed potentially costs a student up to  0.12%, a student who chooses to consolidate the loan before entering the repayment plan can save as much as 0.6%, which is definitely  a considerable net savings. Some graduate students are finding it necessary to consolidate their educational loans when trying to get a mortgage on the house.

Although consolidation simplifies the repayment of the loan so borrowed, it most certainly increases the interest rate and interest paid to a slight extent. Students or parents who have issues regarding the repayment of the loan should consider some different repayment terms provided for federal loans. For instance, income contingent payments are accommodated to compensate for a lower monthly income. The graduated repayment plan allows lower payment of the borrowed amount during the first 2 years after graduation. The extended repayment plan allows you to extend the term of the loan without consolidation. But, before opting these options, one must consider that, choosing one of these plans will increase the total amount of interest paid, however, the increase is less than what is incurred by consolidation.

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