What are Student Loans?
Student loans are a form of financial aid that is provided by private companies and banks in addition to the government. Student loans typically have lower interest rates and flexible repayment options compared to normal loans. The two types of student loans are private loans and federal loans. Private loans are offered by private companies and banks and are easier to obtain but have more stringent repayment terms and higher interest rates. Federal student loans are offered by the government so the interest rates are lower and repayments normally start after the borrower has graduated.
Student Loan Consolidation
Student loan consolidation is a method through which borrowers with more than one loan can merge all their loans into one single loan. The method is very useful for students who have taken multiple loans to refinance their first loan or just to pay for the increasing costs of education. Both federal and private loans can be consolidated but have different requirements and processes.
In federal loan consolidation, the Department of Education buys out all of the borrower’s existing loans and issues a single new loan which has a fixed interest rate depending on that year’s student loan rate. Conditions for student loan consolidation that have been obtained from private institutions vary according to the initial agreement and the policies of the lender.
How to Lower the Interest Rates through Student Loan Consolidation
The interest rate for the new loan is calculated according to the borrower’s current credit rating while adding a decent co-signer to the loan also significantly lowers the interest rate. Another way to reduce interest rates through student loan consolidation is by extending the repayment conditions. If a borrower has taken out both private and federal loans, they can be consolidated separately but private and federal loans cannot be consolidated into one loan.