Consolidating federal student loans lower interest
Even if your rates seem high, t he Department of Education puts a cap on consolidation loan rates at 8.25 percent.One major advantage of federal consolidation loans is that borrowers don’t need a stellar credit score to qualify, they can apply any time (even if their loan is in default) at Loan gov, and they’ll always get a fixed interest rate.When it comes to consolidation, the types of loans you have matters, but most federal loans, including Stafford, Perkins, Direct Plus and Supplemental loans, can be consolidated with other federal student loans.“The interest rate on (federal) consolidation loans is an average of the interest rates on the (federal) loans you’re consolidating,” says Ken O’Connor, director of student advocacy for Fynanz, a New York City firm providing technology for the private student loan market.Consolidating both types of loans excludes borrowers from federal protections.When eyeing consolidation options for private loans only, Mayotte says borrowers should evaluate the new loan’s hardship protections and repayment terms in addition to the interest rate.Those seeking consolidation should also review their repayment options at Student gov, so they’re prepared to pick the proper repayment plan.
This can be attractive to borrowers because the consolidation frequently results in longer repayment periods and lower monthly payments.
“If the terms you’re going to get are the not as generous as the terms you already have, consolidation is probably not a good idea,” she says.
Regardless of whether consolidating federal or private loans, there is a catch.
And once consolidated, they usually have variable interest rates, O’Connor says. Consolidating private student loans when interest rates are low (like now) “could potentially save thousands of dollars.” It also means your interest rate can fluctuate higher as the years tick by.
Unlike federal loans, it can be trickier to get your private loans consolidated.
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Know that you might need a higher credit score if you want the best rates without a co-signer.