Considering Student Loan Consolidation Interest Rates
Lowering interest rates have made student loan consolidation interest rates an option being considered by many people. Nearly 80% of students have some type of student loan by the time they graduate and the average loan for a student is $10,000. For many students and parents, education loans have come from several sources, have varying interest rates, and have higher payments that one is comfortable with.
When one has federal education loans student loan consolidation interest rates are very straightforward. The method for setting the interest rate on these loans is established and the regulations are very strict. However, the rates vary greatly on private education loans and are calculated with many factors included. When one is consolidating student loans they will want to consolidate their federal education loans separately from their private education loans to take advantage of the benefits available.
The federal government figures student loan consolidation rates by taking the average weighted interest rate of all the loans and rounding up to the nearest 1/8%. In most cases the loan’s interest rate will be between the lowest and highest interest rates that a person currently pays. The highest that the interest rate will go is 8 1/4%.
Students who have PLUS loans often choose to take advantage of the PLUS loan loophole. When a student gets a PLUS student loan the cap on the loan is eight and one-half percent. But, if when consolidated, the cap is eight and one-forth percent. A person can save one-fourth percent by consolidating the loan.
Interest on a private education loan is calculated using the prime rate or London Interbank Offered Rate with an additional one to five percent origination fee. The origination fee is based on a person’s credit score. The origination fee normally is included in the loan and there is not an upfront fee required.
The total amount of the loan can also be increased when other costs must be added. Capitalization of deferred interest from the original loan may be included in the loan if the original loan had deferred interest. If there were any discounts offered with the original loan they normally must be paid back and will be included in the loan as well.
If a person has a lot of student loans with different lenders. Or, if they have several different government loans that must be paid individually, it is often more convenient to consolidate into one loan. By consolidating an individual will be paying one interest rate on their loans to one lender. In addition, the payment of their loan will usually be less because the loan is extended longer than the original loan. However, it is important to consider whether or not the long term payment of interest will result in a significantly higher loan. Talking to a professional who can discuss options and types of student loan interests rates that will best meet ones needs is an important step before consolidating.
Where do you find the lowest student loan consolidation rate? Need undergraduate student loans for your education?