Cost of consolidating student loans

Know that you might need a higher credit score if you want the best rates without a co-signer.

Federal consolidation loans come with borrower protections private lenders may not offer.

Instead of making multiple payments to multiple lenders, the borrower only has to pay off the new consolidation loan, says Michelle Pezzulli, vice president of operations for Credit Union Student Choice, a student lending service provider in Washington, D. “That new loan will have its own interest rate; it will have its own repayment terms; it will have its own terms and conditions,” she says.

This can be attractive to borrowers because the consolidation frequently results in longer repayment periods and lower monthly payments.

“With (our student loan program), if the borrower makes 12 months of on-time principal and interest payments, they can request to release the co-signer,” he says.

“That creates tremendous flexibility, especially for families applying for loans for multiple kids.” Students consolidating federal loans can do so through the Department of Education’s website at Loan gov, by phone at (800) 557-7392 or by downloading a paper application at Loan gov/borrower/and mailing it in.

Borrowers should have loan account numbers, estimated payoff dates and contact information for each of their loans’ holders ready.

While loan consolidation can sometimes dramatically lower a borrower’s monthly payments, Kevin Walker, co-founder of the college finance site Simple Tuition.com, says it can also cost you.

“The downside of getting a lower monthly payment is that you’re going to subject yourself to substantially more interest charges over the life of the loan,” he says.

And once consolidated, they usually have variable interest rates, O’Connor says. Consolidating private student loans when interest rates are low (like now) “could potentially save thousands of dollars.” It also means your interest rate can fluctuate higher as the years tick by.

Unlike federal loans, it can be trickier to get your private loans consolidated.

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Even if your rates seem high, t he Department of Education puts a cap on consolidation loan rates at 8.25 percent.

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