Just a few short years ago, most Federal student loans had variable interest rates. If you have an older loan, your rate is likely variable. Interest rates have fallen dramatically over the past couple of years and today, having a variable rate is not the best type, as your monthly loan payments can go up when these rates start to rise (as they have slowly begun to do). This can really put you in a financial bind.
If you have Federal student loans with variable rates, you are better off refinancing or consolidating your student loans and locking in a fixed low interest rate. Educational loans have helped many people attain their future goals. It is important that they are managed properly so that they do not cause a hardship once a person graduates. This is where consolidation comes in and can help one maintain a low monthly payment that is manageable as well as a low interest rate so that a good chunk of the balance diminishes with each payment.
What is a Federal Student Loan Consolidation?
A Federal Student loan consolidation allows you to combine one or more of your Federal education loans into one new loan with a low interest rate and low monthly payment. The Federal consolidation loan program is available under the Federal Family Education Loan (FFEL) and consists of different loan types. Under this program, you can consolidate all or some of your outstanding student loans into one, even if they are held by different lenders and are of different loan types.
With a Federal student loan consolidation you can take advantage of a variety of benefits. For instance, you can qualify for a fixed low interest rate of 2.77% or lower. You may also be able to reduce your monthly payments by as much as 60% by extending your repayment terms. Moreover, you only have to write one check a month, to one lender.
It is important to note that no matter where you go in order to consolidate your student loans under this program, the interest rates will be the same. The benefits and incentives, however, sometimes do differ from one lender to the next. Thus, it does pay to shop around. This is a program initiated and [email protected] by the Federal government and currently the rates are lower than they have been. The bottom line is that if you are going to consolidate, now is certainly the time to do so.
Things to Consider
When deciding whether or not to consolidate your student loans, it is important to weigh all of the variables involved. First, take a look at the interest rates you currently are paying. If, overall, you will end up paying a lower fixed rate with the consolidation, then you are probably better off getting the loan. Currently, the interest rate offered under the Federal program is based on the weighted average interest rate on loans being consolidated, rounded up to the next higher one-eighth of one percent.
Another thing to consider when deciding on whether or not to consolidate is how affordable your monthly payments now. If you are having trouble making the payments and you have exhausted all of your deferment and forbearance options, then consolidation could really help. It should also be kept in mind that simply extending the term of your loans via deferments means that you will be paying more for the loan in the long run. If, however, you consolidate at a lower rate, the payments will be lower and you will not have to pay more over the long term.
Finally, you need to take a good look at how long you have to pay off the loans. If you are close to paying them all off, then mostly it is not worth your consolidating. If, however, it is going to take you one or more years and you are struggling with the payment, then you should seriously consider doing so.