Student Loan Consolidation Interest Rates 1

Student Loan Consolidation Interest Rates: Federal or Private?

Student loan consolidation interest rates are the amount of interest you pay once you combine your educational loans into one loan. Consolidating loans saves money on your monthly payments but extends the length of the loan therefore increasing cost over time. While this concept of paying even more for your education is a bit disheartening it is often the only way to reasonably manage your loan payments. There are two types of educational loans, federal and private.  Student loan consolidation interest rates differ based on the amount of the loan and the type of loan being combined.

First, the federal student loan which is the preferable type of student loan. It is preferable because the student loan consolidation interest rate is a fixed rate and can not exceed a certain amount set forth by the federal government. The interest rate of these loans is a weighted average of the loans that are being consolidated, rounded up to the nearest one eighth of a percent. The student loan consolidation rates of these loans can be no higher then 8.25 percent. The calculation helps to ensure that the cost of interest on the loan does not greatly exceed the overall repayment amount. 

Although your new rate may be greater then the original rate of one loan and less then that of another the new overall rate should only raise your overall final repayment amount slightly. Federal student loan consolidation interest rates are always fixed. This means that the life of your loan, which can be up to 30 years, is locked in at one interest rate. The ability to budget for a set expenditure is the beauty of a federal student loan consolidation interest rate.

A private student loan consolidation interest rate is more risky then a federal loan because the borrower will likely incur more cost. The private educational loan can not be combined with a federal loan for consolidation because the significantly low interest rates on federal loans are not available for private loans. That being said, they are still able to be consolidated. The private student loan consolidation interest rate is based on the borrowers credit score. As with more traditional loans, the better your credit score is the better interest rate you will be rewarded. 

If you are looking to consolidate but have made credit missteps during your college tenure you might consider paying the individual loans for a little while and rebuilding your credit score. This will help you get a better interest rate which will save you money in the long term. The interest rates on private loans can be either fixed, like federal loans, or variable. A variable rate over 30 years can be dangerous because of market fluctuations. A borrower must be sure that they can afford to pay the difference if and when the interest rate rises.

When you consider student loan consolidation interest rates the easy choices are on federal loans. But when they include private loans the borrower must be more diligent in their research and price shopping. Check with various lenders to see which one will give you the best rate and keep in mind that the deal you make today will have a long term impact on your finances.