How to consolidate student loans

A loan consolidation is a process by which a borrower refinances his student loans into one single payment. This not only simplifies the whole repayment process, but also significantly reduces the monthly payment and extends the repayment period.

With load consolidation, instead of multiple payments to different lenders, the student borrower is left with one monthly payment to a single lender. Most federal loans, such as Perkins, Stafford, and Direct loans are eligible for student loan consolidation.

some lenders also offer private consolidation loans for private school loans as well.

Although both student and parent borrowers can consolidate loans, they can not combine these loans. Only loans from the same borrower can be consolidated.

You are not eligible for loan consolidation while you are still in school, and loans must be in good standing to be eligible for consolidation. There are very few and special exceptions to this.

Federal student loan is a process by which you combine all your federal student loans into only single payment. The process should lead to a significantly lower monthly payment.

There are several benefits to consolidating your student loans:

• reduce your monthly payment
• deal with only one creditor
• reduce your interest rate
• improve your credit rating
• lengthen your repayment period
• no cost to consolidate loans
  

The following loans qualify for federal student loan consolidation: Stafford Loans, Federal Direct Stafford Loans, HEAL/HPSL loans, Parent PLUS loan, Perkins, all Federal FFELP and Direct Loans and Nursing School Loans among others.

There are many online sites that simplify the process of applying for a loan as well as loan calculators to help you figure out your total payment. Since there are no fees associated with consolidating loans, be wary of any lenders that want to charge consolidation fees.

While you can and should shop around for the lender with the best rate and discount, some lenders will require a minimum balance in order to consolidate a loan.

Things to consider when applying for a consolidation loan:

• interest rate - the rates on a consolidation loan is a weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a percent. There interest rate is currently capped at 8.25%
• prepayment period -  unless you specify otherwise, the standard prepayment period is 10 years.  Most borrowers however will use the consolidation loan to extent this period from 12 up to 30 years.  You should however keep in mind that longer repayment periods will imply higher total interest paid over the life of the loan.  You do have the option of changing the repayment period one per year.
  
• prepayment penalties
• prepayment options - some lender offer the possibility of interest only loans at the beginning, with the monthly payment increasing as your income increases. Other lenders might allow for an increasing monthly payment with early increases according to your income level.
• consolidation turnaround time - some lenders will take longer to consolidate your loan. The time frame can go from 30 days to up to 90 days with some lenders.
  

Consolidating student loans usually lengthens out the payment period. This, coupled with a lower interest rate, allows you to reduce your present monthly payment. Lower payments means more money available to meet your other needs, such as car payments, living expenses, entertainment, housing, and other basic expenses. This in itself increases your quality of life.

These lenders usually do not require that you be employed, have any kind of collateral and do not require a co-signer.

By consolidation your loans you can also free up funds to pay loans with higher interest rates (such as credits card) and loans with interest expense that is not tax deductible.

As your career advances, and you start to earn a more money, you can make larger monthly payment to reduce the repayment period and at the same time reduce the total amount of interest expense. You can also make periodic bulk payments. In either case there are usually no prepayment penalties.