Once you complete your college degree, you might consider loan consolidation, a convenient way to manage debt. Consolidation will create a single monthly payment for private loans and it may decrease the overall monthly payment amount.
The government does not back private student loans. Private loans from banking institutions have higher interest rates than those offered by the Federal Stafford Loan Program.
Private lenders approve loan consolidations and set interest rates based on the borrower's credit rating. For approval of a consolidated loan, a co-signer may be required. If a borrower's credit rating is low, a co-signer may help to earn the lowest possible interest rate.
Federal and private loans are not eligible for consolidation into one loan.
Only student loans in good standing and not in default are eligible for consolidation. To consolidate loans in default, payment is required to bring the loan to date before approval.
Student loans cannot be forgiven in bankruptcy cases.
Consider whether a private consolidation loan is fixed or variable. A variable interest rate means that as the underlying interest rate index changes, so will the interest rate on the loan. In 2009, Wells Fargo's base for student loan interest rates is the Prime Rate, as published in the "The Wall Street Journal." As the prime rate fluctuates, the interest rate of a variable loan will reflect the changes.
Lenders have specific terms for minimum and maximum amounts for consolidation. Minimums range from $7,500 to $10,000, with maximums reaching from $100,000 to $150,000, based on credit eligibility. It may not be possible, or beneficial, to consolidate private loans, but even one outstanding loan is eligible for consolidation to reduce payments or the interest rate.
Most student loans offer a grace period of six months. During the grace period, no payment is due, though interest will accrue. Consolidated loan payments are due when the loan provider approves the loan. Consolidate near the end of the grace period, but remember that until the loan is approved, regular payments on each loan are still due.
Consolidating private student loans may decrease monthly payments by increasing the time it takes to repay the loan. Private student loans usually require repayment within 10 years, while consolidated loan repayment plans range from 20 to 30 years. This benefit makes consolidation a helpful tool for students just beginning a career, but the longer the term of the loan, the more the loan costs in the end. Paying off the loan early will decrease the accumulated interest charges. Confirm details about penalties for early repayment with the lender before signing for a consolidated loan.
According to The Project on Student Debt, more students than ever before are paying for college with private student loans, with the percentage of undergraduates with private loans up 9 percent in the 2007-08 academic year from figures gathered in the 2003-04 year. Because private loans are not eligible for federal loan forgiveness programs and feature higher, variable interest rates, students should exhaust federal student aid before turning to private institutions for help with education funding.