A consolidation loan is one that allows you to combine more than one of your student debts into a larger one with a single lending institution. The new lender uses the funds to pay off the balances of all other student loans that you have. This concept is very close to what happens in a home mortgage refinance. A student loan consolidation is available to many students with federal loan types. Some lenders also can offer you private loan consolidations.
Is There Any Cost Associated With Student Loan Consolidation?
There is no fee per say to consolidate your student loans. However, generally you will pay slightly more with your consolidated loan because of a longer repayment period. This occurs because you are paying less each month on your loan and there is a higher balance due to pooling many loans into one larger one. So this causes you to pay more towards interest over the term of the debt.
An important note to keep in mind is that you should under no circumstances pay a fee in advance to consolidate your student loans. If you are asked to pay an up front fee, it is most likely a loan scam. Do not enter into a loan with an up front fee.
Can Anyone Consolidate Their Loans?
Generally both parents and student borrowers are allowed to consolidate educational loans. However, you may not consolidate loans between different borrowers. Consolidation can only occur between the same borrower of the loans. They can however consolidate their loans separately. Another thing to keep in mind is that students that are married are no longer allowed to consolidate their student loans together. This is actually a good thing because if the couple were to get divorced then each of them would be responsible for the full amount of the debt. To avoid problems this provision was enacted to avoid this detail.
Another important detail is that students cannot consolidate their loans while still attending school. You may only consolidate your debts in the grace period or during debt repayment.
Can I Consolidate My Loans With Any Lender?
Yes. You may consolidate your debts with any lender. This is good news because it will allow you to shop around for the best interest rate on your consolidation loan. Something to keep in mind is that most lenders will only offer a consolidation loan with a minimum balance of at least $7,500.
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