Student Loan Consolidation: The Other ReFi BoomWritten by Elizabeth Belli ConsolidateYourLoans.com
You've heard about refinancing in mortgage market. Who hasn't? Interest rates are at all-time lows. Folks have refinanced two and three times in as many years to save thousands of dollars in interest they would have otherwise paid. There's a similar lesser-known boom happening in world of federal student loans, because refinancing or consolidating them can also help borrowers save thousands of dollars in interest expense. 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 lowest they have been in over 30 years - currently, Stafford loans carry a variable rate of 3.46% while student is in school, deferment and grace, and 4.06% in repayment. PLUS loan interest rates are currently 4.86% regardless of student's status. If those rates would hold over standard 10-year repayment term, that would be 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 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 weighted average of interest rates of loans borrower wishes to consolidate and round it up to nearest 1/8%. So, for example, if a borrower had only Stafford loans in repayment issued since July 1, 1998, variable interest rate on these loans is currently 4.06%, and fixed interest rate for that borrower's consolidation loan would be 4.125%. That's 4.125% for life of loan - which can be up to 30 years depending on borrower's level of indebtedness. Now, that's a deal every person with student loans should be considering right now. Because on July 1, 2003 rates will reset. And there are other advantages to federal student loan consolidation. With extended repayment and graduated repayment options, borrowers' monthly payments can be reduced by 50% or more - especially helpful to recent graduates trying to make ends meet. And, if a borrower has multiple lenders and multiple monthly payments, consolidation lets borrower make a single and (generally) a lower payment to a single lender - simplifying bill payment and improving cash flow. Finally, federal student loan consolidation is free - there are absolutely no fees to consolidate. Although terms of a Federal Consolidation Loan are exactly same, regardless of who lends you money, a number of lenders are offering incentives to get borrowers to consolidate with them. And, these incentives can save borrower hundreds, even thousands of dollars in additional interest. Most common is a .25% interest rate discount when borrowers agree to repay their new consolidation loans electronically (direct debit). A more significant discount is offered by some lenders when borrowers make timely monthly payments on their new consolidation loans. For example, ConsolidateYourLoans.com offers a 1% interest rate reduction after borrower has made first 36 consolidation loan payments on time. Other lenders offer same discount after 48 or 60 payments, and others offer lesser discounts at other payment intervals, but idea is same. Just keep in mind, faster you get discount and larger discount is, more you can save.
| | Federal Student Loan Consolidation: The Other ReFi BoomWritten by Elizabeth Belli
You've heard about refinancing in mortgage market. Who hasn't? Interest rates are at all-time lows. Folks have refinanced two and three times in as many years to save thousands of dollars in interest they would have otherwise paid. There's a similar lesser-known boom happening in world of federal student loans. Refinancing or consolidating them can also help borrowers save thousands of dollars in interest expense, and consolidation can cut a borrower's monthly payments down to a size that's much more affordable. 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 lowest they have been in over 30 years - currently, Stafford loans carry a variable rate of 3.46% while student is in school, deferment and grace, and 4.06% in repayment. PLUS loan interest rates are currently 4.86% regardless of student's status. If those rates would hold over standard 10-year repayment term, that would be 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 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 weighted average of interest rates of loans borrower wishes to consolidate and round it up to nearest 1/8%. So, for example, if a borrower had only Stafford loans in repayment issued since July 1, 1998, variable interest rate on these loans is currently 4.06%, and fixed interest rate for that borrower's consolidation loan would be 4.125%. That's 4.125% for life of loan -which can be up to 30 years depending on borrower's level of indebtedness. Now, that's a deal every person with student loans should be considering right now. Because on July 1, interest rates reset. And there are other advantages to federal student loan consolidation. With extended repayment and graduated repayment options, borrowers' monthly payments can be reduced by 50% or more -especially helpful to recent graduates trying to make ends meet. And, if a borrower has multiple lenders and multiple monthly payments, consolidation lets borrower make a single and (generally) a lower payment to a single lender - simplifying bill payment and improving cash flow. Finally, federal student loan consolidation is free - there are absolutely no fees to consolidate. Although terms of a Federal Consolidation Loan are exactly same, regardless of who lends you money, a number of lenders are offering incentives to get borrowers to consolidate with them. And, these incentives can save borrower hundreds, even thousands of dollars in additional interest. Most common is a .25% interest rate discount when borrowers agree to repay their new consolidation loans electronically (direct debit). A more significant discount is offered by some lenders when borrowers make timely monthly payments on their new consolidation loans. For example, ConsolidateYourLoans.com offers a 1% interest rate reduction after borrower has made first 36 consolidation loan payments on time. Other lenders offer same discount after 48 or 60 payments, and others offer lesser discounts at other payment intervals, but idea is same. Just keep in mind, faster you get discount and larger discount is, more you can save.
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