If you have multiple student loans, it probably seems that there is nothing basic about consolidating them. Different lenders, benefits, interest rates, and loan terms complicate things to a point that it can seem overwhelming. However, there are some basic principles that can help you to determine how to approach the loan consolidation process as well as which options are best for your personal and financial needs.

What is a student loan consolidation?

It is important that you first understand what exactly student loan consolidation is. Consolidation means to combine. However, you are not actually combining your student loans. You are, in fact, starting a new one. Your new lender will purchase all of your existing loans and give you one, easy to manage loan. This can make loan repayment less stressful and less confusing.

Private and Government

Although each type of loan has many different branches, there are two basic types of loans; government and private. Government loans are provided to you by the federal government through a government lender. Private loans are provided to you through a private lender, often a bank.

Federal loans do not vary from one lender to the next. In fact, the government ensures that this does not happen by placing federal regulations on factors like interest rates and repayment terms. The government also ensures that there is never an application cost or origination fee for federally funded student loans.

Private lenders are not subject to government terms. This means that interest rates and fees will vary from one lender to the next. Interest rates available to government lenders are not available to private lenders, leaving you with higher interest rates. Benefits that are often available through federally funded loans are not available with private loans and interest rates are higher.

When obtaining your loans or consolidating, it is best if you exhaust all of your federally funded options first. This will ensure that you receive the most benefits and the best rates.

Consolidating your loans

Private lenders will often encourage you to combine your government loans with your private loans. This is not your best choice. Because private lenders cannot offer you the same benefits or the best rates, it is best to keep federal and private loans separate, even if you wish to consolidate.
There are government consolidation plans that make this possible. Government lenders will not purchase your private lender loans. However, all of your federally funded educational loans can be purchased by a government lender. If you are in default on any of your payments, your options will be more limited. However, Direct Loans do allow you to consolidate, even if you are in deferment.

Lower payments or shorter term?

Lower monthly payments may seem convenient. It may even give you the feeling that you are saving money. However, a longer loan repayment term will actually end up costing you more money over the life of the loan. Depending on your situation, this could result in even thousands of extra dollars that you would not have paid, had you accepted a shorter loan repayment term.

If your financial situation prevents you from making a higher loan payment, then utilize the beginning of your loan term to acquire career goals that will increase your income over time. By doing this, you can increase your payments, decreasing the length of the loan. Although you may still have to pay a little more in interest, you will still be paying less than if you had carried the loan all the way to term.

Should you consolidate?

This is a question that every graduate, parent, and student needs to consider before signing any consolidation paperwork. Although consolidation carries many benefits, it is not without disadvantages. Lower monthly payments are often traded for higher costs for the life of the loan. Grace periods are forfeited. Benefits are lost. Although some of these factors may not apply to all loans or situations, the loss in other situations can be more trouble than it is worth.

If you do not have much left on your loan to pay, you will find that the overall cost of consolidating your loan is much more than the savings you receive for a few more short months. If you are not having any trouble making your payments, extending the life of your loan will cost you even more over time.

Borrowers with Perkins loans can lose benefits that might have otherwise provided them with debt forgiveness. In these situations, consolidation may not be the best choice. How student loan consolidation will impact your financial situation today and in your future should be taken into consideration.

Student loan consolidation is not for everyone. For some students, it allows them to make timely payments without the worry of missing a payment and suffering the consequences. For others, consolidation is an option that can hinder their financial future. By understanding the basics about student loan consolidation, you can determine if it is the right option for you.

Student loan consolidation can be an effective means of managing debt for some graduates. However, for some, consolidation is not a viable option. Before moving forward with a student loan consolidation plan, it is essential that you take the time to consider all of the advantages and disadvantages of taking this approach to managing your educational debt.

If you have already determined that loan consolidation is the best option for your personal and financial situation, it is important to be a comparison shopper. Do not settle for the first lender you find. Instead, take the time to carefully compare lenders and their benefits. Consider all of your options and seek understanding of what you are agreeing to.

You are agreeing to a new loan

It is important that you understand that by consolidating your loans, you are acquiring a new loan. Although the word, “consolidate” means to combine, this is not actually what is happening. Once the loan is initiated, your new lender will purchase all of your current loans, paying them off. You now have one lender to repay for the total amount owed on your student loans. You now have a new loan with a new lender and new benefits.

Types of consolidation loans

There are a number of consolidation loans. However, they can be grouped into one of two classifications; private and government. Government consolidation loans tend to offer more benefits and should be where you check first.

Federal lenders are regulated by the government. The loan terms and maximum interest rate are determined and do not fluctuate between different government lenders. Federal lenders do not perform a credit check, do not use co-buyers, and do not penalize you for paying your loan off early. This can be a big advantage if you have credit problems but still want to consolidate your student loans.

Because there is no difference in interest rates, fees, and credit check options between federal lenders, benefits that they provide will be your comparison guide . Stafford consolidation loans are available through the FEEL program. PLUS consolidation loans are available through two different options; FFELP lenders and the Direct Loan Consolidation Program. Before deciding on which type of government loan you want, consult with an account manager. They can best help you to determine which government loan is right for you.

Private lenders are not subject to federal terms and guidelines. Rates and fees can vary from lender to lender. Additionally, interest subsidies are not available through a private lender. However, private lenders are also able to offer interest reductions for timely payments or automatic payments. Not all private lenders offer this benefit so it is important to check with each lender to find out which benefits they have to offer you.

Private lenders often base their rates upon your credit. If you have bad credit, private loans may be difficult for you to secure. Because private lender rates are not regulated by the government, you may find that you end up paying a higher interest rate. Compare private lenders carefully to ensure that you find the best options.

Some private lending institutions are government approved and do participate in the Federal Family Education Loan Program. These lenders carry many of the same benefits as government lenders. You can find a list of private lenders that participate in government programs by visiting FinAid.org.

Perkins loan consolidation

Although many graduates do decide to roll their Perkins student loan in with their consolidation, this is an action you should consider carefully. Perkins loans come with a number of benefits including the right to cancel your loan if you decide to become a teacher of science, math, or special education. By adding your Perkins loan to your consolidation, you lose all benefits that your Perkins loan originally offered to you. Before consolidating your Perkins loan, consult your Perkins lender to determine if this is the right option for your situation.

Consolidating during your grace period

During the grace period of your loans, you have the lowest rate available for your government loans. This rate can be locked in by applying for consolidation before your grace period ends. However, it is important to know that doing this will cause you to lose the remainder of your grace period. Repayment of your loan will begin as soon as the consolidation terms are finalized. If you are not currently employed, this may not be an option for you.

Wrapping it all up

Student loan consolidation packages come with a variety of advantages, disadvantages, interest rates, terms, and requirements. Before committing to any specific lender, take the time to consider all of your options. If needed, consult an account manager or contact the Department of Education. They can help you to compare your personal and financial situation to different lenders and find the right lender for your individual needs.

Student loan consolidation was first introduced in the mid 1980’s. Originally, it was designed to provide a low interest solution to students struggling to pay their educational debts. Loan rates were usually better for borrowers who sought after student loan consolidation, saving them money and enabling them to make timely loan payments.

Consolidation has changed drastically since its beginning. Once an effective way of managing debt, loan consolidation can often result in the borrower incurring more debt, depending on their personal and financial situation. In today’s world, it is important for borrowers to carefully consider whether or not student loan consolidation is right for their individual situation.

There are a number of variables that can impact whether or not consolidation is right for you. Although there are notable advantages for many students, others will find that consolidation an ineffective means to handling their educational loans. Only you can decide for sure. However, the following information has been designed to help you determine whether or not student loan consolidation can benefit you.

How much debt do you have?

Most lenders have a minimum debt allowance for consolidation. If you do not meet or exceed this amount, you are not eligible for consolidation. Additionally, you must have at least two separate loans with two different lenders. These loans can be private, federal, or a combination of the two.

What benefits does your current lender offer?

Many government lenders offer benefits to borrowers. These benefits can include grace periods until six months after graduation, flexible payment options, and deferred payments. These benefits will no longer be available to you if you consolidate your loans. Although your new lender may have benefits that they can offer to you like lower interest rates for timely payments, federal loans often have more desirable benefits.

Is now the right time?

Mark Kantrowitz, the publisher of FinAid.org states that right now is not the time to consolidate for student with PLUS or Variable Rate Stafford Loans. This is due to the decreasing interest rate available to borrowers with these types of loans. Although it might make sense to consolidate in order to lock in these lower interest rates, the updating for consolidation does not happen until July 1 of the following year. If you wish to lock in a lower interest rate, it is in your best interest to wait until after the update occurs.

Another important thing to consider is whether or not you may want to consolidate again in the future. Unless you return to school and obtain more loans, you can only consolidate once. If rates are lower in the future, you will be locked in to the rate at which you originally consolidated with.

Do you have a Stafford or PLUS loan?

Stafford and PLUS loans used to be variable rate loans. However, since July 1, 2006, their interest rates have been fixed. This means that there is no need for you to lock in a fixed rate. In fact, you may end up paying a higher interest rate by consolidating since your interest rate is weighted on the interest rate of all of your loans combined.

How far are you into the current loan?

If you only have a few years or a few thousand dollars to pay on your current loan, you are likely to find that consolidation is more trouble than it is worth. The term of the loan is likely to increase the amount of money you pay back. The minimum loan term extends for ten years. If you are close to paying off your student loans but are having difficulty making your payment because of a temporary financial or personal issue, you may consider other options to managing your student loans.

Are you considering consolidation because of marriage?

Although there are currently no restrictions on married couples consolidating their student loans, if divorced or separated, they cannot be separated. Another important factor to consider before combining your student loans with your spouse’s is whether or not one of you plans to return to school . If so, combining your loans may not be your best option. By consolidating you and your spouse’s loans together, you would both have to return to school at the same time if you wish to receive loan deferment.

How will it impact your financial situation?

Consolidating your student loans should be about more than just saving money. It should be a means of adequately managing your debt. Does consolidation allow you to start your own business, increasing your income so that you can make higher payments in the future? Will it motivate you to spend less? If these are possibilities, then consolidation may be beneficial.

When considering student loan consolidation, carefully consider all factors and variables. Research your options carefully. The best way to determine whether or not consolidation is right for you is to consider how it will impact your overall financial situation now and in the future.

Due to increased tuition costs, many graduates and students have a combination of private and government student loans. Although this may not seem important at the time, consolidating these loans after graduation must be approached correctly. Failure to understand the differences in the two types of loans can result in a substantial increase in the amount you have to repay for your education.

As a rule, government and private loans should never be combined when consolidating your educational loans. Government loans will not consolidate private loans and private lenders cannot provide the same rate the government loans offer. Therefore, if you wish to consolidate your student loans, it is best to consolidate private and government loans separately.

Advantages and disadvantages of consolidation

Before committing to loan consolidation, it is important that you understand that there are advantages and disadvantages to consolidation. This applies to both government and private student loans. For some students, the disadvantages exceed the benefits.

Consolidation has proven to be an effective means of managing educational debt for many students. It offers a convenient monthly payment which is often lower than the total amount of the original loan payments being consolidated. Payments are often lower because the term of the loan is reset. However, this often results in an increase in the total amount of interest paid for the life of the loan. This is one of the many disadvantages.

The increased amount in interest to be paid can sometimes amount to thousands of dollars. To many students, this does not seem like an effective means of managing debt. Loss of benefits that you may already have with your current lender will also occur. One of the main benefits affected is that of interest rate discounts.

Interest rate discounts on consolidated loans are generally less favorable than the original loan. This includes both automatic payment and timely payment benefits. These are the many factors that you should carefully consider before settling on the decision to consolidate your private student loans.

Finding a lender

If you have determined that consolidation of your student loans is the only way that you can effectively manage your payments, finding the right lender is crucial. Lenders should be researched and compared, based upon your personal and financial situation. You may also check with your current lender to see if a rate reduction is an alternative to consolidating. If an increase in your credit score has occurred during your studies, your lender may be willing to negotiate a new interest rate in an effort to continue carrying your loan.

To assist you in choosing the right lender, there are a few key questions that you can ask private lenders. First, you will want to find out if the rate they offer is fixed or variable. This can greatly alter the total amount of interest that you pay over the life of the loan. Private lenders are now limited because of the economy change over the past few years. The following list, not provided in any specific order, are the only private lenders left.

NextStudent Private Loan Consolidation

NextStudent requires that you have a minimum total student loan debt of $7,500 and allows for a maximum of $300,000 combined debt. They provide loan terms for up to 30 years. There are no prepayment penalties. Interest rates vary quarterly. They also have origination fees ranging from 0%-5%.

Chase Private Loan Consolidation

Chase Bank requires you to have a minimum combined debt of $7,500 and a maximum debt of $150,000. Chase does not have any origination fees and allows up to a 30 year loan term. A co-signer may be used if you do not meet credit criteria. The co-signer can be released from your loan after 36 months if you meet their credit criteria.

Wells Fargo Private Loan Consolidation

Wells Fargo requires you to have a minimum combined debt of $5,000 and a maximum of $40,000-$100,000. The maximum combined debt is based upon your credit. Through Wells Fargo, you are allowed a maximum of a 15 year loan. Interest rate is variable and there are no origination fees. They offer an interest rate reduction for auto payment and an additional reduction rate after 48 on-time monthly payments.

Student Loan Network Private Loan Consolidation

Student Loan Network requires that you have a minimum of $10,000 combined debt and a maximum combined debt of $300,000. For balances less than $40,000, they offer a loan term for up to 20 years. Amounts exceeding $40,000 can have up to a 30 year loan term. Origination fees can be between 1% and 5%. There are no prepayment penalties and the interest rate is variable. A co-signer can be used and released after 48 months of on-time payments if the primary borrower meets credit criteria.

Understanding what different private lenders offer can assist you in making the best financial decision concerning your student loan consolidation. Be sure that you are clear on the terms specified in your contract. This will eliminate any unexpected surprises after the loan is in repayment.

Student loan consolidation is often an effective means of managing debt for students, parents, and graduates. Combining loans can leave you with one easy payment each month. Depending on the terms of the loan, this can also reduce the monthly payment. However, this can cause an increase in the amount of interest that you pay over the entire life of the loan. To help decrease this cost, it is important to understand the different types of loans and your options.

Government vs. Private

There are two basic categories when considering student loans; government and private. Government loans are offered by government financial institutions. Private student loans are offered by private lenders, most often, a bank. There are two large differences between the two categories rests within the interest rates and benefits that each one offers.

Private loans are not offered the same interest rate discounts as government loans. The interest rates are determined upon economy factors and your credit. Private loans can also require an origination fee. Additionally, private loans do not offer the same benefits as government loans. The only benefits that are offered by private lending institutions are interest rate discounts based upon timely payments and automatic payment.

Government loans offer a much lower interest rate. They also have a number of benefits. The benefits offered will vary, depending on the type of loan. You should also note that any benefits you have with your current lender will be lost after consolidation. Once the consolidation is complete, you will have a new lender with new benefits.

Because government loans offer better benefits and more desirable interest rates, it is highly advisable that you do not combine the two types of loans. Government lenders will not purchase private loans and private lenders cannot offer you the same rates or benefits on your government loans.

Government consolidation

Since your best option is to consolidate government loans separate from your private loans, you will need to know how to comparison shop your government loan consolidation options. Different government loan consolidation plans offer different types of benefits. This is the only difference between government lenders since variables like interest rates and payment terms are regulated by the government.

Stafford Loan Consolidation

Stafford loans are the most widely known member of the government loan family. They are offered in subsidized and unsubsidized versions. These are offered through either a Direct Loan Program of a FFELP lender. Most students have a combination of subsidized and unsubsidized Stafford Loans.

There are certain rules and guidelines that your Stafford Loan lender must adhere to. These are mandated by the government. Interest rates on consolidated Stafford Loans are fixed. The rate is determined by the weighted average of your combined interest rates with a cap of 8.25%.

If you are a graduate within the six month grace period, you may qualify for a lower interest rate before your repayments start. Federal government also states that you cannot apply for consolidation while you are in school. There are no credit checks and no penalties for early payment. However, if any of your loans are in default, you may not be eligible for Stafford Loan consolidation.

Direct Loan Consolidation

Direct Consolidation loans can combine any federally loaned educational funds. These include Stafford Loans, PLUS Loans, and Direct PLUS loans. Similar to the Stafford Loan consolidation option, Direct Loan consolidation is regulated by the government.

Direct Loan consolidation is intended for students and families that have financial disadvantages. They offer flexible repayment options and credit terms. There are no credit checks or fees associated with Direct Loan consolidation. You are not required to have a minimum combined amount in order to qualify for a Direct Loan Consolidation.

Interest rate is fixed through the entire life of the loan and is based upon the weighted average of your government loans, capped out at 8.25%. You may still be able to qualify for a Direct Loan consolidation, even if one or more of your loans are in default. This is usually contingent upon reaching satisfactory repayment terms.

Perkins Loan Consolidation

Perkins Loans do not offer a consolidation option. However, you can consolidate your Perkins loans with any of your other government loans. However, it is advised that you seek the guidance of your Perkins loan counselor before consolidating your Perkins loan.

Perkins Loans offer a large number of benefits to their borrowers. Perks like cancellation benefits if you become a public school teacher will be lost. You will also lose your nine month grace period, three months longer than Stafford Loans. These benefits are available to you as incentive to pursue teaching as a career.

Carefully considering your credit future, career future, and current situation is vital to selecting the right consolidation plan. In many cases, you can find other options outside of consolidation. This may provide you a more effective means of managing your educational debt.

For many graduates, student loan consolidation provides an effective means of managing their debt. Although there are some negative aspects that you should consider, there are multiple benefits to approaching your loans in this manner. Carefully considering your financial situation and weighing out all of your options can help you to make the right financial decision.

Interest rate

If you have multiple loans with multiple variable rates, consolidating your loans will provide you with a fixed rate that is weighted on the rates you currently have. Do not be fooled into thinking that this will save you money. It does, however, remove variable rates. Consolidation provides you with a fixed rate for the term of the loan, allowing you to lock in any lower variable rates you may have.

Locking in a rate during the grace period can be extremely beneficial. This is the time in which your interest rates are the lowest. However, it is important that you understand that by consolidating, you eliminate your grace period. Repayment of all loans would begin once the loan is finalized.

Benefits

Although you will lose the benefits that you have with any existing lenders, you may be able to acquire new benefits with the lender you choose to consolidate with. Some lenders offer benefits like life-of-loan servicing. This ensures that, for the life of your loan, you will have the same benefits. You should check to see if the lender you are considering has this option available.

Some lenders also offer special interest rate benefits. These are usually contingent upon timely payments or automatic payment options. Again, these benefits are not offered by all lenders, so you should check to see if the lender you plan to use offers any of these benefits.

Payments

By consolidating your loans, you only have to make one monthly payment. This payment is often lower than your original combined payments. However, payments are often extended. Extended payments do have their disadvantages. Depending on how much you owe on your student loans and how long of a repayment plan you choose, you can end up paying thousands of dollars more over the life of your loan. To avoid this common occurrence, it is best to limit yourself to a ten year loan. Although your monthly payments may be higher, you will avoid paying excess interest.

Some lenders do offer flexible repayment plans and there are no pre-payment penalties. By consolidating, you may be able to find a loan term that better fits your personal and financial needs better than your current loans. Careful consideration of possible lenders and loan terms can help you to determine if this will be a benefit for you.

Debt management

Although it is not true in all cases, some graduates are able to utilize consolidation as a proper means of debt management. By combining all loan payments into one convenient monthly payment, there is less of a chance of forgetting to make a payment, avoiding late fees. It can often provide a better handle on your overall financial picture by making your student loans more manageable.

In most cases, an extended loan life is not beneficial. However, there are situations in which an extended loan payment can be beneficial. Situations in which financial stability can be achieved during the infancy of the consolidation can pave the way for increasing payments in the future. By increasing principal payments during loan repayment, the length of the repayment plan can be reduced. This also reduces the amount of interest that you will have to pay towards your educational loans.

Marital consolidation

Many married couples choose to consolidate loans to make the debt more manageable. However, this option should be considered carefully. In order to qualify for deferment, both you and your spouse would have to return to school at the same time. Since most couples stagger their return to school, deferment may not be an option if marital consolidation is chosen. Additionally, marital consolidations cannot be separated if you and your spouse divorce.

Easy qualifications

Student loan consolidations, in most cases, are easy to qualify for. Depending on whether you select a private of federal lender, credit checks may not be required. You do not have to worry about the need for a co-signer in situations that credit is not considered. There is also no fee to consolidate your student loans.

Some lenders do require an upfront payment. However, this payment is applied to the balance of the loan. Do not ever use a lender that mentions a fee for consolidating your loans. If you are ever in doubt about the information that a lender provides, you can contact the Department of Education for more information.

Student loan consolidation is not for everyone. In fact, there are many situations in which consolidation will only further complicate your debt. Carefully weigh your options and compare lenders. By doing this, you can accurately determine if you will receive benefits from student loan consolidation and if it is right for you.

Student loan consolidation, undeniably, has many benefits. For many students and parents, it can combine multiple student loans and reduce otherwise unmanageable monthly payments. Yet, student loan consolidation is not right for everyone. It is important to be aware of possible disadvantages so that you can make an educated decision on whether or not this option is right for you.

Understanding Student Loan Consolidation

Student loan consolidations are not intended for marginal debts. In order to qualify, the total amount borrowed must meet or exceed a specified amount. This amount can vary from one lender to the next. In most cases, multiple loans are purchased and paid by the consolidation lender. The student or parent then makes payments to the new lender for a term ranging from 10 to 30 years. The term is set by the borrower.

Loan consolidation allows the parent or student to make one monthly payment. The amount of this payment is generally lower than what would have been paid to individual lenders. In many situations, student loan consolidation can enable students or parents to effectively manage debts.

Disadvantages

Understanding possible disadvantages can aid students and parents in making the right decision concerning their educational debts. Factors that can impact the level of disadvantages for consolidation include the total amount owed, personal financial variables, and how much has been paid to the current loan. In some cases, these variables make student loan consolidation an ineffective means of managing debt.

Because the loan is placed on an extended payment plan, the amount paid over time can greatly exceed the amount that would have been paid if the loan had not been consolidated. Interest rates may also be increased, resulting in a substantial increase in the amount that is paid over time. In some cases, thousands of extra dollars can be added to the overall cost.

Before considering consolidation, consider the amount that has been paid on the existing loans. If a large amount of the original loan has already been paid, the potential increase in interest and extended payment plan may cause the overall cost to meet or exceed the amount that has already been paid, resulting in a loss of a large amount of funds. Carefully review the consolidation terms and rates to determine if the process will even be beneficial to your situation.

In most situations, it is recommended that personal and federal loans are not combined. Consolidation in federal student loans can result in a loss of benefits and grace periods. If consolidation occurs within the first six months after graduation, the student or parent must begin repayment immediately. A loss of benefits can also occur with Perkins loans.

Students and parents cannot combine loans for consolidation. However, each individual borrower can consolidate their individual loans. This could be a disadvantage if parents are in hopes of helping their student by consolidating all educational loans. This could also place either the student or the parents below the minimum debt requirements for student loan consolidation.

Avoiding Scams

Scams can be found in nearly every venue that deals with money. This is true for student loan consolidation as well. Known as Advance Fee Loan Scams, parents or students are led to believe that there is a fee for consolidating their loans. Student loan consolidation is free. Stafford and PLUS loans may request a fee before proceeding with the process but this fee is applied directly to the loan, reducing the total amount owed.

Some brokers have also been known to tell parents and students that they can save money by consolidating. This is inaccurate. Although this may not indicate a scam, it is an attempt to convince you to consolidate on false pretenses. You may want to carefully consider whether or not you wish to borrow from a company that uses this practice in an attempt to gain customers. Even if it is not a scam, it is unethical.

Weighing the Options

Before committing to a consolidation loan, it is important to sit down and consider all factors. This includes potential positive and negative aspects of student loan consolidation. If you are a student seeking consolidation services for yourself, you may even consider discussing the terms with your parents. Parents or students may contact the Department of Education to inquire about specific lenders or to review terms. Parents or students can also seek the aid of a financial advisor to determine if student loan consolidation is an effective means of managing their debt.

The Bottom Line

Although there are a number of disadvantages to student loan consolidation, there are still many positives. For many parents and students, it has helped them to effectively manage debt. Each situation is different and by evaluating your situation carefully and considering all of your options can help you to make the best debt management decision.

Like most other areas in life that involve money, scams are present in the student loan consolidation arena. There are also lenders that are legitimate but offer loans under false pretenses. Learning how to spot possible scams and being educated about loan consolidation can protect you and your finances.

Student loans can fall into one of two categories; federal loans and private loans. Understanding how each type of loan works can assist you in spotting false practices and scams.

Understanding Private Loans

Private loans are offered to you through financial institutions. These are generally bank lenders. Private loans generally have higher interest rates than government loans and do not offer the benefits that government loans can provide. For this reason, you should exhaust all of your government assistance options before searching for a private lender.

Private loan companies often use marketing tactics to reel in students for consolidation and loan origination purposes. They may use radio, television, direct mail marketing, telemarketing, and online advertising to encourage you to place a loan with them.

Avoid scams

Private lenders do not commit scams. Although it is true that they sometimes use deceptive practices, they do not steal your money. A proper loan agreement must be signed and entered before a private lender can take any money from you. This should be your first clue to a potential scam.

Do not ever give your credit card information, personal information, or PIN number to anyone over the phone, even if they claim to be a lender. Lenders do not ask for this information over the phone and a signed agreement must initiate the loan agreement. Some private lenders do charge an origination fee, but this is only after paperwork is signed and reviewed.

Spotting Private Loan Deception

If you have already exhausted your federal options or do not qualify because of income, you will most likely have the need to consolidate through a private institution. Understanding deceptive practices can protect you and your future.

A deceptive practice is anything that tries to deter your attention from the most important aspect, the loan. Incentives like gift cards, prizes, and credit cards are often used to remove your focus from the loan terms, leaving you with a high interest rate. Often times, you could have found a better interest rate through another lender.

You should carefully review all private lender terms before signing. You can research information about the lender online at FinAid.org. You can also find reviews about the lender. These reviews are usually provided by others that have acquired loans through the institution. You can also find out more about the lender by visiting your state Attorney General’s website or your local consumer protection agency. The Better Business Bureau should also have information about different private lenders.

Once you have carefully reviewed the lender and the terms, you can commence with the consolidation process if you believe it is the right package for you. Just be sure to comparison shop. This will ensure that you get the best rate and the best benefits.

Avoid any private lender that attempts to use logos, names, or seals similar to government agencies. These are used in an attempt to deceive consumers. Government lenders do not send mailers, make phone calls, or use other soliciting tactics to gain your business. Government lenders must be contacted by you before aid can be provided.

Your Government Loans and Private Lenders

No matter what a private lender tells you, they cannot provide the same interest rate or benefits that your government lender offers. This is regulated by the federal government. Do not be fooled into thinking that a private lender can save you money on your government loans.

If a private lender tries to convince you that your interest rates will go up, take the time to look at your loan documents. It is true that some government loans have a variable interest rate. However, there is a maximum, or capped, rate of 8.25%. Your government loans can never go over this amount.

If you want to consolidate your government loans, contact a government lender. There are consolidation options for government educational funds. This enables you to keep the prime rate that government lenders can offer as well as many of the benefits.

Perkins Loans

You should carefully consider combining a Perkins Loan with any other type of loan. Perkins Loans come with many benefits. By consolidating, you will lose all benefits that it offers. Perkins loans even offer loan cancellation is certain circumstances. Before adding your Perkins loan to any consolidation package, consult your Perkins lender for assistance.

Anyone can be scammed. It happens all over the world, every day. Even more people are fooled into deceptive business practices. Take the time to research private lenders. This can help you to protect yourself from scams and dishonest lenders.

As educational costs skyrocket, more and more graduates are left with an overwhelming amount of debt. Student loan consolidation was originally designed to help reduce educational debt. However, over the last several years, the impact of the economy had changed the way student loan consolidation works.

Today, consolidation is not a method for saving money. In fact, many students end up acquiring more debt through the consolidation of their student loans. Although it does come with many benefits, student loan consolidation is no longer the right option for every situation.

There are other options

What many students and graduates are not aware of is that there are many alternatives to managing their debt. Loan consolidation is only one of the options that are offered. Educating yourself about all of your options, consolidation and otherwise, can aid you in making the right financial decisions in terms of your educational debt.

Income sensitive repayment

Income sensitive repayment is offered by the FEEL Program and the Direct Loan Program. This repayment option was developed July of 2009 to aid low income students in managing their student loans. Students who are eligible for this program will receive monthly loan payments that are income based.

Students and graduates will receive payments that are 15% of the amount of their income that exceeds the 150% poverty line, divided by 12 months. The percentage averages out anywhere from 4%-25% of the student’s monthly income. Payments must at least cover the interest of their loan. This option is not available to Parent Plus loans.

Extended repayment

To qualify for extended repayment, students and graduates must have at least $30,000 in educational loans. The interest rate for extended repayment plans is a variable rate and it will fluctuate throughout the life of the loan.

Graduated repayment

Graduated repayment allows students and graduates to pay a smaller, fixed amount towards their loans for the first four years. After the first four years, the payments gradually increase. The interest rate for graduated repayment plans is fixed.

Deferment

In some financial situations, a deferment is available through government loans. You are required to submit proof that your income level is below the national poverty level. Deferment generally lasts for one year. You are only allowed so many deferments during the life of your loan. You can also request deferment if you have returned to school. It is important to remember that during deferment, interest continues to accrue. Enrolling in the Peace Corp can also qualify you for student loan deferment during the time you serve.

Tuition help

Some government programs offer funds that you can apply towards your tuition in exchange for volunteering. These programs offer a great alternative to student loan consolidation. They can also be an effective means of reducing your overall educational debt.

The Military, in accordance with the Montgomery G.I. Bill, offers tuition assistance to soldiers that opt in to the program. Soldiers are provided with $100 that can be applied to tuition fees during their first twelve months of service. Upon successful completion of a military program, up to $65,000 can be granted for tuition assistance.

AmeriCorps also provides a tuition reimbursement program. In exchange for twelve months of service, volunteers are provided with a $7,400 stipend in addition to $4,725 to apply towards student loans.

VISTA is a non-profit program that strives to reduce hunger, homelessness, and poverty within the United States. In exchange for 1,700 hours of volunteer time, you can receive $4,725 to apply towards your student loans. To apply for this program you can call (800) 942-2677 or (202) 606-5000.

Employer payback

Some private employers offer a loan repayment program in exchange for work in your field of interest. This work can either be volunteer work or salary work. This factor is determined by the employer. Many employers that offer this program do advertise their educational repayment programs. However, this is not always the case. Inquire your human resources department to determine if your employer offers this option.

Debt forgiveness

Debt forgiveness offers students and graduates a cancellation or forgiveness of part or all of their educational debt if certain terms are met. The terms for debt forgiveness vary, depending on the type of loans you have and the degree that you may possess.

If you have a Perkins loan, you can receive debt forgiveness in exchange for teaching math, science, or special education. Debt forgiveness is also offered to graduates that teach students of low income families.

Government debt forgiveness programs are offered to graduates that possess a degree that can benefit low income populations within the United States. Debt forgiveness is granted in exchange for working in designated areas that are poverty stricken. You provide services within your scope of practice to the community. The most common fields that receive debt forgiveness are legal, educational, and medical fields.

If you have considered student loan consolidation and determined that it is not right for your needs, you are not alone. Many students and graduates have found the disadvantages to consolidation outweigh the benefits. If, however, you still need a debt management solution, considering one of the consolidation alternatives could be just the solution you are looking for.

Although student loan consolidation options may seem the same, at a glance, they are, in fact, quite different. Variables in interest rates, benefits, and payment options are just a few of the difference that you will notice after carefully investigating your loan consolidation options. The purpose of this guide is to help you to better understand the process as well as some of your options.

What exactly is student loan consolidation?

The term, consolidation, means “to combine”. From an outsider’s point of view, this is what loan consolidation looks like. However, a closer look indicates that the term is a bit deceptive.

Upon the completion of a successful loan contract, your new lender purchases all of your student loans. Generally, they go to each individual lender and discuss terms for repayment, purchasing the loans for the principal amount and any interest that has accrued thus far. This amount is less than the amount you would have paid over the life of the loan. This is how your new lender makes money.

They have now acquired your loan for a lesser amount. The new lender now offers you a new loan on the amount that it cost them to purchase your loans. This loan has a new interest rate. You now have a new lender, a new loan, and a new interest rate.

How is interest determined

Interest rate is determined by what is called the “weighted average” of your current interest rates on the day that you applied for the loan. To calculate the weighted average of your current interest rate, the amount of each loan is multiplied by the interest rate. These numbers are your “weight factors”. The weight factors are now added together. The amounts of your loans are added together. The weight factor total is divided by the loan amount total and multiplied by 100. This is your weighted average interest rate.

Government consolidation loans are capped at 8.25%. This means that the interest rate of your loan cannot exceed this amount. This regulation does not govern private lenders. This is something that you should be aware of when researching different types of lenders.

Many loan options, two basic categories

As mentioned above, there are two basic categories for student loan consolidation; government and private lenders. Under each category of lenders, there are many subcategories. Each subcategory has its own benefits and disadvantages.

If all of your student loans are government loans, your best option is to search for government loan consolidation. This is because interest rates are not variable. They are fixed rates. Government consolidation loans also do not base their rates on credit. Instead, repayment options, interest rate, and length of the loan are determined by the government. This provides you with two notable benefits.

The first benefit is that, since government consolidation loans do not vary in rates and terms, they must offer benefits in order to compete. These benefits are their way of gaining your student loans. Secondly, government loans offer you more flexible options in respect to repayment plans. Options like income sensitive repayment, loan deferment, and graduated repayment are offered through government loans. These options are not available through private lenders. Unfortunately, you cannot combine private and government loans with government lenders.

Private lenders do allow you to combine government and private loans into one consolidation plan. Although interest rates are not capped, many private lenders offer incentives and lower interest rates for timely payments and automatic withdrawal from your account. Private lenders usually require a credit check, unlike government lenders. Interest rates are based on the results of your credit check. If you have bad credit, you may have a difficult time finding a private lender or experience high interest rates.

Not without problems

Although student loan consolidation can offer a number of benefits to borrowers, it is not without problems. Many borrowers end up repaying thousands of dollars because of extended payment plans and interest rate fluctuations. Others lose valuable benefits because they were not aware of the benefits that their original loan had to offer. This is most common for students and graduates that consolidated their Perkins loan. Perkins loans come with a large number of benefits, including debt cancellation if you meet certain criteria.

There are other options

Consolidation is not right for everyone. In fact, many students and graduates find it to be an ineffective means of managing their educational debt. There are other options like debt forgiveness and volunteer work that can assist you in managing your student loans. Consolidation is not your only option.

Carefully researching different lenders, understanding your current loans, and comparing the results can help you to make the best financial decision for your situation. Never settle on the first lender that you speak to. If in doubt about a lending institution, seek the aid of the Department of Education.