Any time one borrows funds, one of the top criteria is the interest rate that will be charged. Even a small variance in the amount of loan interest can make a big difference in one’s overall amount of payment – especially on long-term debt obligations such as a home mortgage or student loan repayment.
In fact, over the past several years while mortgage, home equity, and credit card debt levels have declined due to the recessionary economy, student loans have become the fastest growing category of household debt.
For those who possess numerous student loans, it is likely that there are differing interest rates on each of these debt obligations – therefore, along with the loan balance – prompting many different monthly payment amounts.
One way to combat the financial burden, as well as the stress, of multiple student loan payments is to consolidate one’s student loans. In doing so, a borrower will be able to simplify their borrowed student funds into one single loan that consists of just one monthly payment.
Oftentimes, depending on the lender, the type of loan, and the interest rate that is charged, a borrower may be able to reduce his or her amount of monthly payment by 50 percent or more when opting for a student loan consolidation.
There are numerous types of student loans that are eligible for consolidation and refinance. These can include federal student loans, PLUS loans, Grad PLUS loans, private parent education loans, and private student loans.
How are Student Loan Consolidation Interest Rates Based?
Typically, when dealing with federal student loan consolidations, the interest rate on current student loans will determine the interest rates for future loan consolidations. With regard to federal student loans, these debts are either subsidized or unsubsidized.
Those interest rates that are found on subsidized loans are, in most cases, lower than rates that are found on unsubsidized loans. For example, if a borrower receives a subsidized loan for the school year and has an interest rate of 4.5 percent, and the same borrower receives an unsubsidized loan for the following school year with an interest rate of 6.8 percent, then after the borrower graduates and decides to consolidate their loans, it is likely that their loan consolidation interest rate will be between 4.5 percent and 6.8 percent – or approximately 5.65 percent.
(It is important to note that as of August 2, 2011, graduate students may no longer receive subsidized student loans. And, while graduate students may still receive unsubsidized loans, they are responsible for the interest that accrues on that loan while they are still attending school. This rule went into effect on July 1, 2012).
Conversely, the interest rates that are offered by private lenders on student loan consolidations may differ. For example, these rates are based either on the LIBOR (London Interbank Offering Rate) Index, or on the Prime Interest Rate index, plus a margin that is based upon the borrower and / or their cosigner’s credit rating.
In many cases, private student consolidation loans may also contain origination fees that range from between 0 to 1 percent. This amount will be dependent on the credit of the borrower and / or cosigner. It is likely that those borrowers and cosigners who possess superior credit will receive lower interest rates on their student consolidation loans.
Are Student Loan Consolidation Interest Rates Regulated?
Federal student loan consolidation rates are regulated by the government. These types of loans essentially exist for the purpose of helping borrowers to reduce their monthly payments on student loan funds. There are, however, varying interest rates offered, based upon a borrower’s financial situation.
While the interest rates on student loans that are made by private lenders do not face the same regulations that are imposed on government funds, typically such rates range from 5 percent to 18 percent.
Taking the Next Step
If you are a good candidate for a student loan consolidation and are ready to take the next step, you may often do so via various online sources.
If you are ready to proceed to the student loan consolidation application, get started here to begin the process.