Your law school student loans can seem daunting. However, student loan consolidation is a valuable means of managing your debt. This article will advise you as to your federal and private student loan consolidation options, and criteria and benefits pertaining to same.

Federal Student Loan Consolidation

What Consolidation Loans Are. The Federal Student Loan Consolidation program was created by the Higher Education Act of 1965. Federal student loan consolidation is offered by private sector lenders, and these loans are guaranteed and subsidized by the federal government. When you consolidate your federal student loans, your existing federal loans are refinanced and incorporated into a single, new federal loan---comparable to refinancing a home mortgage.

Benefits Of Loan Consolidation. Consolidating your federal student loans provides a number of benefits. Instead of having multiple loan payments to make every month, you only have a single payment to make. If you have variable rate federal loans (those taken out to prior to July 1, 2006), you lock in a fixed rate for the life of the loan.

Extend The Life Of Your Loan. Federal loan consolidation also extends the repayment term on your federal student loans from ten years to up to thirty years. Extending the time period reduces your monthly payments significantly. You should be aware, however, that stretching out your payments means that you will pay more interest over time. Further, federal consolidation loans may be paid off early without penalty.

Improve Your Credit. Federal consolidation loans are a great way to help your chances of being approved for a residential mortgage or a car loans. Because your monthly loan payments are now smaller, less of your monthly income is earmarked toward debt, thus your debt to income ratio is lower. Debt to income ratio is an important factor that lenders examine in determining your loan eligibility and amount.

Eligibility For Federal Loan Consolidation. Federal consolidation loans are available without any credit checks, employment verification, fees, or any other prohibitive measures. The only eligibility requirements are that you owe over $7,500 in federal student loans and are not in default on these loans.

Application Process. You can apply for such loans quickly and easily online or over the phone. The lender will ask you for personal information, two personal references, and your current student loan information.

Who You Can Consolidate With. You can consolidate your federal loans with any lender, as opposed to just the original originator of the loans. It does not matter if all of your federal loans have the same or different originators.

Which Loans Can Be Reconsolidated. Any federal education loan can be reconsolidated. You can even reconsolidate a consolidation loan, though you may do this only once, and must add loans that were not previously consolidated. You can also consolidate two reconsolidation loans together.

Interest Rates Upon Reconsolidation. Reconsolidation does not relock the rates on the consolidation loan. Instead, the consolidation loan is treated as a fixed rate loan within the weighted average interest rate formula used to calculate the interest rate on the new consolidation loan.

Repayment Plans. Important benefits consolidation loans are the several repayment plan options that become available to you, along with the extended loan repayment period. These options include extended repayment, graduated repayment, income contingent repayment, and income sensitive repayment.


Private Student Loan Consolidation

Similarities To Federal Consolidation Loans. Private student loan consolidation is similar to federal student loan consolidation in a number of ways. As with federal student loan consolidation, you will reduce your monthly loan payments, have a single payment, lower interest rate, and longer repayment period.

Differences From Federal Consolidation Loans. An important difference is that unlike federal consolidation loans, private consolidation loans are not guaranteed by the government. As a result, eligibility for such loans is based on your personal credit (or that of a co-signer). A higher credit score will increase your ability to get a lower interest rate, lower origination fees, and a longer repayment term.

Your Credit Score. Credit scores are calculated on a scale from 300 to 850. The national average credit score is 670. Credit scores over 700 are considered good. There are three credit bureaus that calculate your credit score: Equifax (www.equifax.com), Experian (www.experian.com) and Trans Union (www.tuc.com). If your credit score is less than 700, you may want to consider using a co-signer with better credit.

Variable Interest Rates. Unlike federal consolidation loans, private consolidation loans generally carry variable interest rates. This means that your interest rate will increase or decrease based on the market interest rate movements. Lenders base your rate on a benchmark (usually the Prime Rate) plus an additional margin (usually an additional 0%-7% or so). The better your credit is, the lower the margin you will be entitled to.

Origination Fees. Origination fees range anywhere from 0% to 9%, depending on your credit.

Repayment Periods. Repayment periods range anywhere from ten to thirty years, depending on your credit.

Shop Around. Each lender will examine your credit differently, and what they offer to you can vary. Thus, it is wise to shop around and negotiate the best deal possible for yourself. You can generally apply online or over the phone and get answer at that time.


Combining Federal and Private Consolidation Loans