In order to successfully get a consolidation and have a number of loans that need to be clubbed under a common umberella,the interest rate will be gauged on the average of all those loans to be consolidated.One thing to be remembered though is that if you chose to opt for a lender that is affiliated to the FFEP,then that lender is bound by guidelines and rates of interest that is layed down by the Federal Government.This Rate of Interest is Fixed as prescribed by the Federal Government.
The process of getting a federal student loan consolidated is not complicated but must meet with a few pre requisites:
1.The Federal loan that has to be consolidated must be within the 6 month grace period or after the grace repayment period.
2.It should not be defaulted or blacklisted. In other words the borrower should not have defaulted or missed any payments. This automatically disqualifies the loan.
3.Total cumulative outstanding amounts should not be less than $25,000
4.Some of the Federal loans that are accepted for consolidation are Stafford Loans, Perkins Loans and PLUS loans.
Students who takes private loans pay interest rates that are much higher as compared to those who take federal Student loans.These interest rates are pre fixed by the Federal Government and are applicable to all lending merchants that are fall under the program initiated by the FFEP (Federal Family Education Program).One of the best advantages of a federal loan besides the lowered rate of interest is a lowered tax liability since the monthly installments also gets lowered and repayment options get more flexible.
The term or period of the student loan consolidation is also pre fixed by the lender on the behalf of the federal government. On an average the term varies from anywhere between 10 to 30 years depending on the debt amount that has to be repayed and the number of loans that have been consolidated. An important aspect of the repayment tenure is that it gets increased compared to the loan tenure before consolidation, this helps to evenly distribute the monthly payments over a longer period of time ,and hence reducing monthly amount to be paid. In case of extending the tenure of the loan,is done at the discretion of the banking officer,and maybe extended to 5 years more,in order to ease the monthly payment amount.It must be noted though that interest rates also increase exponentially here,and the overall amount paid at the nd is muxh higher than the original prionciple,so only opt for tenure extension if currently under a lot of financial strain.
TYPES OF REPAYMENT
There are two basic types of repayment-
1.Fixed Interest-Under this Scheme, the borrower pays a fixed rate of interest sanctioned by the lender throughout the tenure of the loan,which is significantly lower rate of interest.
2.Floating Interest-In this type repayment package, the interest component is initially very small in the early years of the repayment, and gradually increases overa period of time.Initially in some cases, the principal amount may not be charged in the installment, only to be included at a later stage. Due to the nature of this type of repayment package,the interest charged is much higher than the fixed rate of interest.This is useful for borrowers who have a larger amount of debt.