Refinance Federal Student Loan

Student Loan Consolidation is all about combining all the loans you have and allowing one lender to pay off all the loans. Student loan consolidation is something like a refinance mortgage loan that allows individuals who are in debt to make their payments in a better and more convenient way.

The two most common types of federal student loans available today are Stafford loans (for students) and PLUS (Parent Loans for Undergraduate Students). The variable interest rates on these loans are the lowest they have been in over 30 years – currently, Stafford loans carry a variable rate of 3.46% while the student is in school, deferment and grace, and 4.06% in repayment. PLUS loan interest rates are currently 4.86% regardless of the student’s status. If those rates would hold over the standard 10-year repayment term, that would be the end of this story. But, they won’t hold. Federal student loan interest rates reset every year on July 1; Stafford loans rates can climb as high as 8.25% and the PLUS cap is 9%.

The great news for borrowers is that consolidating these loans locks in a low interest rate. The formula for determining a Federal Consolidation Loan interest rate is to take the weighted average of the interest rates of the loans the borrower wishes to consolidate and round it up to the nearest 1/8%. So, for example, if a borrower had only Stafford loans in repayment issued since July 1, 1998, the variable interest rate on these loans is currently 4.06%, and the fixed interest rate for that borrower’s consolidation loan would be 4.125%. That’s 4.125% for the life of the loan -which can be up to 30 years depending on the borrower’s level of indebtedness.

Eligibility for federal student loan consolidation

You are eligible to consolidate federal student loans when:

  • You are no longer enrolled in school (defined as being enrolled less than half time)
  • You must be in the “grace period” of the loan or must be actively repaying your loan.
  • Most consolidation companies require a minimum loan amount, $10,000 is typical.

Federal loan consolidation has several advantages some of which are:

  • Low interest rate [however the rates keep changing]
  • Long term loan repayment plans
  • Low monthly payments
  • One lender

The federal student loan consolidation services offers students a reliable and convenient way to pay off their debts without overburdening themselves with debt as they struggle to make their way in the world.

When refinancing your student loans there are several things to consider. If you have both federal student loans and private loans, you will have to refinance them separately. With federal loans, you can usually receive a lower interest rate than with private loans. Private student loans are personal loans based on the assumption that the income level will increase with more education. Therefore, refinancing is rated at a much higher level. If you were to mix the two together when you refinance, you would wind up paying a higher interest rate on the combined principal than you would if you financed the two loans separately.

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