With the high cost of a college education, it is likely that many of those who have received financial aid in the form of student loans have more than just one loan to repay upon graduation. This is especially the case if the amount that was received by one student loan was not enough to cover all of the student’s educational financing needs.
What is a Student Loan Consolidation?
A consolidation loan can combine several student loans into just one single bigger loan from one lender. In many ways, consolidating student loans is similar to refinancing a home mortgage. Oftentimes, this makes repayment by the student or parent borrower much easier and more convenient and it is also possible to lower the loan’s interest rate, extend the payment terms, or both.
Consolidation loans are available with most types of federal student loans, and there are also certain lenders who will consolidate private student loans that were originally obtained from banks or credit unions.
Who is Eligible for a Student Loan Consolidation?
Any type of federal education student loan is allowed to be consolidated. Regardless of whether a student or their parent (or parents) has borrowed student loan funds, they are allowed to consolidate their education loans. Although it is important to note that the student and their parents may not combine loans from both sets of borrowers into one consolidated loan. Only those loans that have been taken out by the same borrower may be combined.
In addition, although in the past it was allowable for married couples to combine and consolidate their student loans, this is no longer the case. This is because there is no way to separate out each spouse’s amount of obligation if they should get divorced.
For student-borrowed funds, consolidation of loans may be done during the loans’ grace period or after their student loans have reached the period of repayment. This means that an individual may not consolidate their loans while they are still attending college. In addition, even if a loan is in default, it may be part of a loan consolidation as long as such loans have satisfactory repayment arrangements.
Although students may only consolidate their loans during certain time periods such as after the repayment period begins, it is allowable for parents of a student who have borrowed funds through PLUS loans to consolidate these loans at any time.
There are some instances where a borrower may consolidate a consolidation loan by adding additional loan funds into the consolidation loan. In doing so, however, the borrower must only add new loans into the consolidation that were not previously consolidated.
How to Apply for a Student Loan Consolidation
To apply for a student loan consolidation, a borrower must complete an application form and a promissory note. If approved, a new repayment schedule will be created and implemented. While waiting for consolidation loan approval, it is important to continue making payments on all of one’s current student loans in order to avoid late payments or default.