Student Loan Consolidation: What Do the Numbers Mean?
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Author: Imran Jeans Student loan consolidation is when you work with a lender to combine two or more student loans together so that you only have to make one lower payment each month instead of the multiple payments you would normally make.
Should decide to consolidate your loans you will find that there are many student loan consolidation programs to help you.
Before you decide on your student loan consolidation help you should think about how to group the loans.
If you are one of those people looking for federal student loan consolidation you will want to keep them separate from private student loans. The reason for this is that you can get breaks on federal student loans that are not offered with private student loans, and if you just clump them all together then those offers are no longer available.
The very next thing that you will want to look at, before you even pick a place to use, is the student loan consolidation rates available. Remember you want to work to reduce your payments, not increase them.
When you look at the interest rates available you want to remember that the rates for your consolidation are your weighted average of your current rates of your current interest rates. It is usually rounded up to the closest eighth (1/8) of a percent, and finally topped at about 8.25 percent.
If all of your interest rates are different then the interest rate for your student loan consolidations will be in between them. This by multiplying each amount of the loans with their corresponding interest rate, then adding the total of each of those together, and finally dividing that total by the sum of each of the original loans (without the rate included) together. For example, loan one was $10,000 at 5% interest rate, sum two was $5,000 at 6.25% interest rate, and loan three was another $5,000 at 5.75% interest rate. You would first multiply the loans and interest rates: 10,000*.05= 500; $5,000*.0625= 312.5; $5,000*.0575=287.5. Next you add the totals together: 500+312.5+287.5=1100. Now you add just the totals of the original loans together: $10,000+$5,000+$5,000=$20,000. And finally you divide the two totals together: 1,100/20,000=.055. This means that in this case the interest rate for the consolidated loans would be 5.5%.
If somebody promises that your interest rate will be lower than what you pay now, they are lying. It will be lower than your highest rate, but it will also be higher than your lowest rate. During this process you should always keep in mind that the amount of interest you end up paying will be kept the same throughout the entire time that you are paying off your loan.
When you go for a student loan consolidation, you will find that there are no fees or anything to pay. It is just a slight increase in your interest rates. For those few that do require fees, they will never require them up front, if they do, it is a scam.
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