Students Loans Programs

Consolidating your student loans is a way of putting together all the loans you took from different lenders into the hands of a single student loan consolidation company.

How do you choose the best consolidation lender  that will offer you the best  repayment  terms? 

Choosing the wrong consolidation lender can cause a serious damage
to your budget and general economy. It is very important to follow some guidelines to help you decide who can be your best consolidation company.

Private against federal .

If your original loans are from a federal source, you will look for a federal consolidation. Usually the federal loans are more convenient than the private ones due to the lower rates of interest. 

On the other hand, if the loans to consolidate are from a private source, you will usually go for the private consolidation lender because the federal company will not offer you a good interest rate for consolidating private loans. The reason for choosing this way is that interest  rates and terms vary for both.

Although some private lenders may offer you amounts that consolidate most of your debt, you should always go first for the federal  company if most of the loans you need to consolidate
are federal. 

As a general rule, getting loans from the private consolidation lender means meeting more requirements than from the federal ones.  Private lenders base their loans on creditworthiness and will be looking more at your credit score (if you have any) or the co-signer you present.

Interest rates.

Private lenders usually determine interest rates according to two factors:  the standard rate (LIBOR) used for loans and your credit score. The higher your credit score the lower the interest rate that will be applied. You will try to find a consolidation lender that will offer the lowest interest rate possible.  Also, interest rates can be fixed or variable. The first of course are to be preferred.

Federal lenders (not all federal lenders are offering consolidation loans now), on the other hand, calculate interest rate as the weighted average of the individual interest rates of the loans being consolidated.

Terms and conditions.

You will try to find a lender that offers you the best terms in relation to:

a) Loan Amounts. You will prefer those lenders that can offer you a loan that covers  all your debt.

b) Fees, usually determined by your credit score. These are usually application fees and origination fees (fees applied to issue the loan).        

c) Deferment or period of time between the moment you receive the loan and the moment you start repaying.

d) Repayment term or length of time to complete the repayment.

e)  Whether co-signers are required.

Let’s analyze here the terms and conditions offered by three companies, one federal and two private ones to see which one would be more convenient for you:

Chase Private Consolidation Loan

• Loan amounts:  $ 7,500 minimum -  $ 150,000 maximum
• Fees:  No
• Repayment term – 30 years
• Interest: LIBOR interest rate + 6%. Not variable
• Reductions: Interest reduction with a co-signer.
• Co-signers: Possible release after 36 months of on time payments

Stafford Loan Repayment Consolidation

• Loan amounts:  Flexible
• Fees: No feeds to consolidate Federal loans
• Repayment term: 25 to 30 years
• Interest: 4.5% for undergraduate subsidized loans and 6.80% for undergraduate unsubsidized loans.
• Reductions: Great reduction in monthly payments- sometimes up to 50%
• Co-signers: Not needed

Wells Fargo Private Consolidation Loan

• Loan amounts:  $5,000 minimum. $40,000 to $100,000 maximum
• Fees:  No
• Repayment term: 15 years
• Interest: LIBOR interest rate + 1.0. Variable rate with a floor of up to 3.25
• Reductions: 0.5% on interest rate after 48 initial on-time monthly payments or 0.25% interest rate. Reduction when payments are withdrawn automatically from checking or savings account
• Co-signers: May be required if you don’t have a credit history or do not have an acceptable credit score

From the above details it is not difficult to conclude that the Stafford Loan Repayment Consolidation program is the most convenient in terms of interest rates, co-signers and reductions.

Let’s see now an example of how much you can save by consolidating:

Suppose you are paying loans for a total of $ 30,000, and your monthly payment is $ 345.24, after you do the consolidation you would be paying $229.00 which means you would be saving $116.24 per month.

We can conclude that consolidation of many loans with one single consolidation lender has various advantages:

• It can potentially lower your monthly payments  (up to 50% in some cases)
• It can simplify your finances since you make only one payment each month
• It helps your budget.
• Saves you money.

Choosing the best lender for your consolidation is not an easy task. It requires analyzing the terms and general conditions of at least 3 possible lenders.

The best advice I can give you is that you make a search of a number of lenders and compare their consolidation plans. Then you will be in a much more advantageous position to choose the one that meets your posibilities and needs.

If you have already tried to apply for a consolidation loan and have  had some experience looking for the best consolidation lender, you are mostly welcomed to share your experiences with us here.

The student community will greatly appreciate it.