Consider loan consolidation

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There are two types of student loan consolidation: federal and private. These processes are often confused, but they’re very different. Here’s how:

  • Federal student loan consolidation is a logistical move you do through the Department of Education. You may need to consolidate to be eligible for some federal loan repayment programs, but federal consolidation won’t lower your interest rate or save you money.
  • Private student loan consolidation, which is also called student loan refinancing, is a financial move you do through a private lender. If you qualify based on factors including your credit score, you can save money by getting a lower interest rate.

IN THIS ARTICLE

Federal student loan consolidation basics

How to consolidate federal student loans

Benefits of federal consolidation

Drawbacks of federal consolidation

Private student loan consolidation (student loan refinancing)

Federal student loan consolidation basics

When you consolidate federal loans, the government pays them off and replaces them with a direct consolidation loan. You’re generally eligible once you graduate, leave school or drop below half-time enrollment. Consolidating your federal loans through the Department of Education is free; steer clear of companies that charge fees to consolidate them for you.

When you consolidate federal loans, your new fixed interest rate will be the weighted average of your previous rates, rounded up to the next ⅛ of 1%. So, for instance: If the average comes to 6.15%, your new interest rate will be 6.25%.

Additionally, you’ll get a new loan term ranging from 10 to 30 years. Your repayment term will generally start within 60 days of when your consolidation loan is first disbursed and will be based on your total federal student loan balance, among other factors; click on the link below for more details.

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