Student Loan Consolidation Interest Rates

Student Loan Consolidation Interest Rates and Your Financial Future!

Student loan consolidation interest rates are tricky. The rates vary based on when you consolidate and what type of loan you are consolidating. The first thing to know is what type of loan you have, are they public or private. Next you need to look at the long term cost of the interest of the loan. Third you should look at your own finances and your ability to repay the loans with a given interest rate.

Federal and private student loan consolidation rates differ widely. Almost all federal loans, subsidized or unsubsidized, are eligible for loan consolidation. Federal student loan consolidation rates are based on an average of your loan rates. This rate will be rounded up slightly, but can not exceed 8.25 percent. The rate can also be reduced slightly if you consolidate your loans before the so called “grace period” ends. All federal student loan consolidation interest rates are fixed, which means they remain the same for the life of the loan. Consolidation of federal loans requires payment of no extra fees or penalties. Also, the federal student loan consolidation rate is based solely on the previously mentioned formula and not on your credit score.

Private student loan consolidation rates operate more like a traditional loan. First, private loans and federal loans can not be consolidated together, because of the differing interest schedule.  Private consolidation rates can be either fixed or variable. If they are variable your rate will fluctuate with the market. This is good news when interest rates go down, but can balloon when rates increase. Be sure to clarify which type of consolidation you have before signing on the dotted line. Also, private student loan consolidation rates are based on your credit score. If your credit has improved since you first took out the loan, you could be in luck but if it has gotten worse you may be in for an unpleasant surprise when you consolidate your loans.

Both private and federal student loan consolidation rates will increase the cost of your loan.  Ideally they will lower your monthly payment but the interest will be added to the loan. Therefore, it is exceedingly important that you take time to analyze your loans so that you are sure consolidation is the best choice for you. If you make enough that you can pay your loans without consolidating you may be able to save yourself money in the long run. But, if consolidation is the only way to pay off the loans it is a much better alternative to defaulting on your loans.

Whether you are looking into federal or private student loan consolidation interest rates it is important to ask the right questions of your lender so that you understand exactly what you are paying and for how long you will make those payments. As a new graduate there is no better time to get yourself on the road to excellent credit then with diligent student loan repayment.