College Loan Consolidation - The Basics

When you consolidate your college debt, you simply combine several of your student or parent loans together into one loan from a single lender. As a result, you end up with a single manageable monthly repayment instead of making several monthly repayments at once.

College loan consolidation programs are different from ordinary loans and bring with them a number of important benefits:

- Your credit score will not be analysed

- There is no maximum amount available

- You can potentially postpone repayment

- Debts are forgiven at the death of all borrowers

- Interest paid on college loans could be tax deductible

College Loan Consolidation The Maths

The interest rate on a consolidation loan is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a percent and capped at 8.25%.

Here is a typical example:

Jenny has $7,000 worth of Perkins Loans @ 5% and $13,000 worth of Stafford Loans @ 7.5%. When Jenny consolidates her loans into one, her weighted interest average rounded up to the nearest 1/8th of a percent becomes 6.63%. Here is the actual consolidation calculation: (7,000*5% +13,000*7.5%)/7,000+13,000.

When a borrower consolidates a number of loans with different interest rates, the consolidated interest rate is usually lower than the highest of their interest rates, but it is also higher than the lowest of their interest rates. In most cases, if you keep to the same repayment schedule for your consolidated loan as was originally set out in your un-consolidated loans (e.g. 10 years), then the amount of interest you pay over the lifetime of the consolidated loan will be about the same. That been said, there are a number of important benefits that college loan consolidation provides that makes it a very popular financial lending option for graduates.

College Loan Consolidation The Advantages

One Simple Monthly Repayment - A college borrower can really appreciate the manageability of a consolidated loan when they have multiply loans to manage. Consolidating all the loans into one makes the complexity of multiple loans disappear leaving a borrower with a single monthly repayment.

Alternative Repayment Plans - When you consolidate your college loans, you could potentially take advance of alternative repayment plans which usually become available if the total loan balance is higher. For example, instead of paying back your college consolidation loan in 10 years, you could consider extending the repayment plan to 20 years which will substantially reduce your monthly repayments. In some cases, monthly repayments can go down by as much as 50%. Depending on your circumstances, extending your repayments can make the overall loan more affordable and manageable. However, bear in mind that if you extend your repayments, you will end up paying more interest over the lifetime of the loan. That been said, this option suites many graduates that have other financial commitments and cannot stretch to fully repay the loan in 10 years.

Consolidation resets the clock on deferments and forbearances - In most cases, college loan consolidation resets the 3-year clock on certain deferments and forbearances. As consolidation loan is classed as a new loan, it brings with itself its own set of new deferments and forbearances. This factor is particularly useful for medical students who do not get an in-school deferment during the internship and residency periods.

Consolidating while already in repayment - If you have loans already in repayment then consolidating your loans earlier on could potentially lower your monthly repayments even if you stick to a standard 10 year plan. However, if you are close to the end of the repayment period on your loan, then consolidating may not be the ideal solution.

The benefit of shopping around - If you decide to consolidate your college loans then you can spend time shopping around for the best lender who will give you a higher interest rate discount and better rebates on the fees.

For more information, visit College Loan Consolidation where you will find other useful articles, news and featured college consolidation suppliers.

Mila Spivak. All rights reserved. This article may be freely distributed as long as the content and active links remain intact. No alteration is allowed without express written permission from the author. For more information, visit

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