Student loan debt consolidation, in simple words, means to combine all loans into one. In our context, we are talking about combining multiple student loan debts into one single debt (loan) for various conveniences. Debt consolidation of student loans helps in getting rid of managing multiple monthly repayments of debts, sometimes results in lower interest rates and longer time period.
There are two types of service providers for the student loan debt consolidation, Federal Government, and Private Lenders. Let us have a look at each of them below:
- Federal Government
With a federal government service providers for the consolidation of your student loan debt, all your loans will get combined into one single new federal loan which is called as a direct consolidation loan. While there is flexibility in choosing the payback period, the interest levied is an average of the previous interest rates on the individual loans, rounded to the nearest one-eighth of a 1%. The catch with federal government student loan debt consolidation service is that one can only consolidate federal student loans and not the private ones. The due date for the first installment will be within 60 days from the disbursement of the new loan.
In this facility, one can even consolidate an existing direct consolidation loan, but only with a new eligible loan. Federal Government’s loan programs offer income-based payback plans which have a host of benefits. But with increased payback term and a high-interest rate on an average, one tends to pay much extra in the form of interest. With a federal government consolidation plan for student loan debts, there are many loan forgiveness programs which prove to be a boon in the times of need. Remaining information about eligibility and processes is available on the official website – www.loanconsolidation.ed.gov.
- Private Lender
A Private student loan debt consolidation service is far more flexible and convenient than a federal one. In this service, one not only gets to combine multiple loans into one but also can refinance them at a lower interest rate than any of the previous individual loans. The possibility of getting qualified for a low rate of interest is very high if your credentials are healthy. One can independently choose from three type of rate of interest plans for the new consolidated refinanced loan – fixed, variable or hybrid. The loan term can also be decided quite flexible.
Private consolidation service providers consolidate both federal and private loans into one, which wasn’t the case with federal government service providers. But on the other hand, private consolidation service providers for student loan debt do not offer any income-based payback plans, nor do they have any loan forgiveness programs. These limitations leave the student with very less escape zone in the tough times. For further details, one can go through any of the websites of the private service providers to consolidate student loan debts.
Opting for consolidation of student loan debts can prove to be a right step if one wants to ease up the repayment hassles, but can cost a lot extra if not done wisely.