Consolidating your student loans is a way of putting together all the loans you took from different lenders into the hands of a single student loan consolidation company.
How do you choose the best consolidation lender that will offer you the best repayment terms?
Choosing the wrong consolidation lender can cause a serious damage to your budget and general economy. It is very important to follow some guidelines to help you decide who can be your best consolidation company.
Private against federal.
If your original loans are from a federal source, you will look for a federal consolidation. Usually the federal loans are more convenient than the private ones due to the lower rates of interest.
On the other hand, if the loans to consolidate are from a private source, you will usually go for the private consolidation lender because the federal company will not offer you a good interest rate for consolidating private loans. The reason for choosing this way is that interest rates and terms vary for both.
Although some private lenders may offer you amounts that consolidate most of your debt, you should always go first for the federal company if most of the loans you need to consolidate
As a general rule, getting loans from the private consolidation lender means meeting more requirements than from the federal ones. Private lenders base their loans on creditworthiness and will be looking more at your credit score (if you have any) or the co-signer you present.
Private lenders usually determine interest rates according to two factors: the standard rate (LIBOR) used for loans and your credit score. The higher your credit score the lower the interest rate that will be applied. You will try to find a consolidation lender that will offer the lowest interest rate possible. Also, interest rates can be fixed or variable. The first of course are to be preferred.
Federal lenders (not all federal lenders are offering consolidation loans now), on the other hand, calculate interest rate as the weighted average of the individual interest rates of the loans being consolidated.
Terms and conditions.
You will try to find a lender that offers you the best terms in relation to:
a) Loan Amounts. You will prefer those lenders that can offer you a loan that covers all your debt.
b) Fees, usually determined by your credit score. These are usually application fees and origination fees (fees applied to issue the loan).
c) Deferment or period of time between the moment you receive the loan and the moment you start repaying.
d) Repayment term or length of time to complete the repayment.
e) Whether co-signers are required.