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Student Loan Consolidation

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Based on the report released by the Federal Reserve, the overall amount of student loan debt has been reaching to $1.6 trillion. And many people who have borrowed money through student loans has been up to 45 million by 2019. 38% of these people find it challenging to repay their debts. If you find yourself in a hard financial situation and you have the pressure of high student loan debt pressure on your shoulders, then this post will be beneficial to you. Although the term of student loan consolidation has been prevalent these days, not all the people are quite aware of it. Unfortunately, the vast majority of people are not knowledgeable enough about student loan consolidation and could not use it properly.

In this article, we are going to take a closer look at how debt consolidation work, who is eligible and why you should consolidate your loans.

What is loan consolidation? The difference from loan refinance

There is no doubt that it is not so easy or almost impossible to find a high-quality education with lower costs. To attend a college or enroll higher education programs, the first and the easiest way that comes to the mind is to take a student loan. In most cases, for some kinds of an education degree program, you are obliged to borrow money through several student loans. And if you struggle to repay these different type of credits altogether, and you face a challenge to make a payment on your debts, then debt consolidation might help you.

Through the opportunities that consolidated loans provide, the borrower could combine a couple of different types of credits under one unit. And by doing so, you are not required to deal with them one-by-one. You are only responsible for making a payment for combined debt which charged with a lower amount of monthly payment.

Debt consolidation is beneficial, especially to people who have multiple numbers of credit debts. It makes the borrower free from to tackle with annoying tons of paperwork, legal or bureaucratic procedures.  


Student loan refinancing – it is better to note that the vast majority of people consider that loan consolidation and student loan refinancing are the same things. In reality, even though from the functional point of view they look so familiar, they have some differences, that is why before jumping to the specific ideas, we also need to explain the refinancing of the student debt.

The main significant difference of loan refinancing is that it allows the borrowers to merge not only federal students but also private credits into one loan. However, you should keep in mind that the new and only credit considered as a private student loan.

Besides, refinancing student loans provide you an opportunity to reduce the monthly payments and responsible for only lender or servicer. Also, you can take the benefit of lower interest rates when you possessed a current credit balance and required a level of income.

Lowered interest rates may not sound so appealing at first sight. However, it can save you ten thousands of dollars. In addition to all of these, through refinancing of debts, you will have options of choosing fixed or variable interest rates following the best reflection of your financial situation.

Types of debt consolidation

Based on the requirements for being eligible, rules and regulations with interest rates and other kinds of structural differences, the consolidation of the debts classified into two ways. There is two types of consolidation: Federal loan consolidation and private loan consolidation. Let us take a closer look at each of them apart.

The first and more popular type is federal loan consolidation which allows the borrowers to merge multiple credits which included the federal student loans. By depending on specific requirements and conditions, you are allowed to combine various federal credits into only the Federal Consolidation Loan program.

We should note that you can consolidate all type of the credits except for PLUS loans. It is the only exception due to that this sort of lending is taken by the parent to help for the education of their children. On the other hand, Student PLUS loans could be eligible for consolidation. By the way, let me remind you that you can not include your private investment into Federal consolidation.

How does federal loan consolidation work?

If you decide to apply for student loan consolidation through the Federal consolidation loan program, you will have an option to make a reduced monthly payment. This program provides a weighted average rate of all the consolidated credits which resulted with only and constant interest that never changes. In this case, the interest rat considered such as rounded up to the nearest ⅛ or 0,123%.

Calculation of debts with the weighted average formula could be beneficial or drawback for you by depending on your credit profile. It means that if your balance is higher, it will have more impact on your interest rate in comparison with a smaller balance. And due to these facts, if you had a consolidated credit which is back to before 2006 you could not save money on the interest. You can figure it out and keep it if you have borrowed money before 2006 and choose the adjustable interest rate.

For note, it worth to mention that if you would like to see how exactly loan consolidation is working, you can use the federal student loan calculator which is developed by the US Bank.

If your credit in default, and you still want to consolidate it, then new and unique regulations and rules may apply. You will be required to make at least three-month consistent payment. Or you can choose to use for any the income-driven repayment plans which take into consideration your income to adjust monthly payments. After finishing the applying for consolidation, and you get approval, you will be required to make the first payment within two months.  You will have to keep making the regular payments on your debts up until your credit is in deferment or forbearance, or even you are in the grace period.

If you currently study and you don’t make a payment because of that, you are in the grace period, and you still have a chance to use consolidation. If you want to consolidate your loans while you are in a grace period, you will need to show in your application that you would like your consolidation to begin at the end of the grace period. Otherwise, if you have taken a credit which has the accumulated interest, then you can start to make payments before consolidation even though you are still in studying. By doing so, you can save a considerable amount of money in the long run, because even small payments are getting reach to more significant enough with accrued interest in the long term without you notice.

Who is eligible for Federal Student loan consolidation?

Eligibility requirements for Federal Consolidation Loan are quite flexible actually, but it also has some limitation. If you have borrowed money through the following kinds of credits, then you might be eligible for the consolidation. These types of loans below may qualify for consolidation:

Federal Direct Subsidized Stafford loans (Direct Loans)

Federal Direct Unsubsidized Stafford loans

Federal Direct Consolidation loans

Federal Family Education Loans

Federal Plus loans (not Parent PLUS loan)

Federal Nursing Student Loans (NSL Loan)

Federal Consolidation Loans

If you could not find your loan in this list, don’t worry, it still doesn’t mean that your credit will not qualify for the student loan consolidation. However, it would be better to consult with your lender before applying for federal loan consolidation. One good news is that if you have already graduated or you are out of college, you can also consolidate your debts. Additionally, whether you have attended the college less than half-time, you still may qualify for consolidation.

On the other hand, to qualify for consolidation of your debts you have to also take into account the following requirements. You can use federal loan consolidation if you have been making regular repayments in the credit. In addition to this, when you consolidate your federal loans, you have included at least any of the Direct FFEL program loans.

What is the cost of applying to Federal loan consolidation?

First of all, it worth to remind that applying for federal loan consolidation is entirely free. There is no application fee charged for federal student loan consolidation. That is one the primary indicator to differentiate the student loan scam which trying to make you fall into a money trap. You have to be careful about these loan consolidation scams which always trying to persuade you to help with the consolidation process for a certain amount of money. Just keep in mind that, who tells you that they can help or realize your debt consolidation process, be aware that they are not the official representative of the US Department of Education.

Don’t even give them any of your personal information because whatever they offer and promise you is something that you can do yourself comfortably on your own. There is no need to pay a penny or waste your time with anyone else’s help, take your time and make it yourself.


Important considerations for Federal Loan Consolidation


The first critical factor that you should keep in mind is you can not consolidate any private credit with the federal loan. Federal consolidation loans may include types of loans which are fully-funded by the US Government. These are mainly on the list of the federal loans which we have already mentioned above. Besides federal loans, not any types of loans (mostly called private loans) are available to be consolidated. On the other hand, it is possible to combine the individual credits, but it will be ultimately another subject and is realized with entirely different conditions which we are going to discuss in the further paragraph.

Among all the federal types of loans, only Parent PLUS loans are not available for consolidation.

As we mentioned earlier, you could consolidate your loans if you have defaulted credits. But this could not be realized under some conditions. You are not able to make your debts consolidated if you hold judgment on your defaulted loan. You can only combine it until you expire or dismiss the judgment.

Loan rehabilitation versus loan consolidation – If you already loan in default, it is more recommended to take a look at the loan rehabilitation at first before applying for consolidation. It is because student loan rehabilitation has some features in favor of students in comparison consolidation for defaulted loans.

Thus, when you consolidate your defaulted loan, it doesn’t get rid of the word “defaulted” on your credit score. On the other hand, when you apply for loan rehabilitation, it brings your loan into the repayment status and repairs your credit score.

That is why, from the perspective of higher credit score which is very significant for many series of financial-sensitive products or services such as other types of loans, mortgage or even rents, etc., it is better to credit rehabilitation firstly.


Re-consolidating of the loans – If you ask this question that is also asked by the students frequently whether they can re-consolidate their credit or not. Fortunately, the answer is yes. If you still are eligible for consolidation of the new loan, you can make it combine with the previously consolidated one. All you have to do is that you must have a new eligible loan to be strengthened.

Marriage consideration – another critical issue that you have to keep in mind that is marriage. If you have to get married and you pay your taxes jointly, then, you are not able to merge a couple of different types of loans and repay them as a joint couple.

Application time – in regular times, to finalize the application process doesn’t take so long. After you can finish and submit your application for student loan consolidation, you receive the approval within 2 or 3 months. Especially, if you have submitted an online application, then this time might be shorter but not in all times.

However, we take into account the fact that the US Department of Education may not respond to your request at once, and it could take longer to evaluate your documents. That is why try not to lose time and delay your application.

In addition, the following type of loans such as Federal Perkins Loan, Loan for Disabled Students, Insured Students Loan, and Federal Consolidation Loans may qualify for the student loan consolidation.

Consolidation of Private student debt

Another way to consolidate your debts is to apply for the private debt consolidation which may look very familiar to federal loan consolidation. In fact.  even though they have more characteristics and similar features, each of them works in an entirely different way. Private student debts are the credits given by independent for-profit organizations such as banks, credit unions, or other entity.


How does private loan consolidation work?

If you would like to consolidate your private loan, the first thing the borrower is going to do is to make a new agreement with his or her private lender. After the lender evaluates your credit history, he pays off your previous debt and writes a new one. To determine the eligibility for the borrower is usually credit history.

However, it could be extended to other factors such as your current financial situation or your professional circumstances. When your private lender sees your loan as eligible for consolidation, you sign a new credit contract. Like a federal loan consolidation, in this case of private merger also you receive reduced monthly payments. But when it comes to the interest rates, it could be higher or lower that weighted average rate of all of the other credits.  

For private loan consolidation, you will have two options for choosing the interest rates. The first one is fixed interest rates which are constant and could never change no matter any conditions. The other choice is flexible which could vary by depending on financial market demands and supply. Each of them has advantages and disadvantages, that is why it would be better to choose the one which also reflects your current and future financial situations.

Who is eligible for private loan consolidation?

The indifference with federal student loan consolidation, you can combine the federal loans into private loans. For being eligible for private loan consolidation, all you need is pure and qualified credit history. According to the FICO standards, when you have a credit score which is higher than 670 (including itself), it is considered as “good” one. On the other hand, if you think that the credit profile is not good enough for being qualified, don’t worry, you still have another chance. You may qualify for private loan consolidation if you could find a cosigner who has a good credit score.  

Besides all of these, it worth to note that private lender may act flexible and they are independent in determining the eligibility requirements. For example, a particular group of private lenders requires a certain level of employment stability which may also include a minimum amount of annual income ratio. Or another example is that some of the lenders may put the limitation such as you must be the one who has already graduated or should have complete required degree, etc. You may negotiate and agree on this side of requirements with your private lender. But it may not work at all times.


Why should you consolidate your loans?

No matter which type of consolidation pathway ( federal or private) you choose, the debt consolidation has a massive number of benefits. Especially, when you have multiple numbers of different student loans, and you find it difficult to make payments on your debts, then,  consolidation of the debt could be beneficial for you. Let us take a closer look at the reasons why you should consolidate your loans.

Advantages of  the loan consolidation

Free apply – as we mentioned earlier you are not required to pay any fee or charge to apply for the Federal student loan consolidation.

Reduced payments- federal loan consolidation allows you to repay your outstanding amount of student loan debts with smaller monthly payments. Besides that,  Federal Consolidation loan gives you a chance to choose a repayment plan (IBR) which is entirely adjustable and convenient for your current financial situation.

Deferment or forbearance –  when you find yourself in a situation where you can not repay your debts due to some illness or other reason, loan consolidation allows you to break your repayment while you are in deferment or forbearance.

Federal student loan forgiveness – when you apply for Federal Consolidation loan, you will have access to loan forgiveness or cancellation which is an excellent opportunity to get rid of your debts and even to become a debt-free.


Final note

By taking all said into consideration, what stands out from the article is that there is a variety of the opportunities and advantages that you can take the benefit from debt consolidation. No matter what type of consolidation you would like to apply, there is one thing to keep in mind. As probably you know, there is a lot of student loan scams these days. And of course, you would not like to fall into this trap. That is why try to use only official sources while filling your application.

And if you don’t have time and you would prefer to use any third agency to realize your loan consolidation, rely on only professional service. Our professional team of financial experts and student loan advisors at the Student Loan Resolved is 24/7 ready to help you. To learn more about the other subjects related to student loan consolidation, or another type of loans, you may contact our team or just look at the website. We would be glad to help you on your way of becoming debt-free.