There are two ways for school loan consolidation – through private or federal institutions.
The federal student loan is a good choice, as it is linked with the department of education. You need to meet some eligibility criteria for the federal repayment program. The federal consolidation is not known to save your money or lower your interest rate.
On the other hand, private student loan consolidation is run through the private lenders. To achieve one, you definitely need to have a good credit score and a fair income job.
When you go for this kind of loan consolidation under the federal loans, it pays off all the debt and replaces it with a new consolidated loan along with a new interest rate. Moreover, the eligibility for the federal loan is that you need to be a graduate, drop below the half time enrolment or a school dropout.
The school loan consolidation is free under the department of education unlike other companies which charge a consolidation fee. Consolidation under the federal loan gets you a fixed interest rate. Also, it will be weighted average of the earlier rate and rounded up to 1/8th of one percent. In addition, you get a new loan which has the term period of ten to thirty years.
This loan consolidation under the direct loan program is eligible for pay as you earn, pay as you earn (revised), public service loan forgiveness and income contingent repayment. Consolidating loan with the direct consolidation loan will certainly make you eligible for the program, if your loan comes under the FFEL i.e., Federal Family Education Loan program.
Consolidating the default loan which is under the federal student loan, the eligibility to have the federal benefits like forbearance, loan forgiveness and deferment will be retained. To recover from the default loan, you can opt for an income driven repayment plan or you will have to make consecutive three monthly payments. School loan consolidation makes your life easier, if you have many federal loan service providers. This renders you to pay once in a month rather than paying multiple times.
The consolidation of federal loan allows you to save some money, but it happens seldom. Your repayment term period will increase and your monthly payment will decrease. But you will be paying more interest throughout the term period of the loan.
Also, the interest rate on your school loan may rise because of its calculation from the weighted average of your earlier rates rounded up to 1/8th of one percent. Eventually, any leftover unpaid interest on the loans which you shall be consolidating will get added to your principal balance. And it will increase the total amount of interest you shall be paying.
This loan consolidation will replace all the multiple student loan(s) with a new single private loan. Hence, this will allow you to save money if you get a lower interest rate. But to get this loan consolidation, you will need to show a credit history, income and reliable job. The credit score should be in 600s.