Can private student loans be consolidated?
Yes. Both the types of student loans – federal and private – can be consolidated.
Why are federal student loans preferred by students instead of private loans?
Federal student loans are preferable because of several reasons, such as:
- You are allowed to defer payments on a consolidated federal loan in case you want to go back to school. You cannot do this on a consolidated private student loan.
- You can ask for, and usually obtain, forbearance of payments against a consolidated federal loan in times of economic hardship.
- You can ask for forgiveness on a consolidated federal loan. Certain activities of national interest – such as military service, federal volunteer programs.
What are the advantages of federal student loan consolidation?
Federal student loan consolidation offers the following benefits:
- Considerably reduces monthly repayments – by more than 50 per cent in some cases.
- Interest rate is fixed; so you know what your outgoing will be.
- You make only one monthly repayment against all the student loans you had taken.
- Enhances your creditworthiness, which can be useful in obtaining other forms of credit from the market.
- Your cash-flow is better.
- Repayment options can be flexible.
Who can avail of federal student loan consolidation?
Anyone with an outstanding of more than USD20,000 in student loans is eligible.
What types of federal student loans can be consolidated?
The types of federal student loans that can be consolidated include:
- Stafford Loans, regardless of whether they are subsidized or not.
- Federal Direct Stafford Loans, regardless of whether they are subsidized or not.
- HEAL / HPSL Student Loans.
- Parent PLUS Loans.
- Federal Direct Parent PLUS Loans.
- Federal Consolidated Loans (cannot be reconsolidated in the future unless additional loans are included).
- Federal Direct Consolidated Loans (cannot be reconsolidated in the future unless additional loans are included).
- Perkins Loans.
- Nursing School Loans.
- Other types of federal student loans (check with your consolidator).
What is the interest rate applicable to federal student loan consolidation?
The interest rate is calculated as the weighted average of the interest rates on your existing separate loans rounded up to the nearest one-eighth of one per cent. Once the interest rate on your consolidated loan is fixed, it will not change even if the interest rates in the banking and financial market changes.
How do I calculate the weighted average interest rate on my consolidated loan?
Suppose you have two loans to consolidate. One loan is of USD 20,000 at an interest rate of 6.543 per cent, and the other is of USD 5,000 at 7.943 per cent. The weighted average of these two loans consolidated into one, is calculated in the following five steps.
Step 1: Obtain the per loan weight factor by multiplying each loan by its interest rate: USD 20,000 x 6.543% = 1,308.6 = per loan weight factor. USD 5,000 x 7.943% = 397.5 = per loan weight factor.
Step 2: Add the two per loan weight factors as derived in step 1: 1,308.6 + 397.5 = 1,706.1 = total per loan weight factor.
Step 3: Add the loan amounts. USD 20,000 + USD 5,000 = USD 25,000 = total loan amount.
Step 4:Divide the total per loan weight factors (derived in step 2) by the total loan amount (derived in step 3) and then multiply by 100. (1,706.1 ÷ 25,000) x 100 = 6.824
Step 5: Round it to the next nearest 1/8 (i.e., one-eighth) per cent. 6.824 rounded to the nearest 1/8th per cent equals 7.012 per cent, which is your estimated consolidation interest rate.
Can a federal student loan be consolidated more than once?
If you consolidated with anyone other than the US Department of Education, you cannot reconsolidate it unless you fulfill one of the following conditions: 1) You took loans after the first consolidation and the new loans are not consolidated; 2) You have one or more consolidations from different lenders that have not been consolidated with your first consolidation.
What is the mode of repayment of consolidated loans?
The first installation must be paid within 60 days of the disbursement of the consolidated loan. This apart, there are several repayment options you can choose from, such as:
- Fixed monthly repayments over a fixed period of time, i.e., standard repayments.
- repayments that increase over the years, i.e., graduated repayments.
- Variable repayments depending on your yearly income, i.e., income-sensitive repayments.
- Long-term repayments (through 25 years if loan amount is USD30,000 or more, or 30 years if the amount is USD60,000 or more), i.e., extended repayments.
Are any fees charged for consolidation of student loans?
No fees are charged for consolidation of federal student loans. A fee however may be charged for consolidation of private student loans.
Is there a check on creditworthiness before student loan consolidation is granted?
No such check is made for consolidation of federal student loans. But a credit check is usually made in the case of consolidation of private student loans.
Should I stop my loan repayments when my consolidation application is in process?
No, Your federal student loans have not been consolidated until you are notified that your individual loans have been paid off. Application for consolidation is not the same as actual consolidation; so you must keep repaying your individual loans until you are formally informed of their consolidation.
Can I consolidate my federal student loans with credit card consolidation and other such debt consolidations?
No. Federal student loans are guaranteed by the US government. Credit cards and other such credits are given by the private sector and are not guaranteed by the US government. The two categories of loans therefore cannot be consolidated together.
|
