Additionally, certain lenders only offer loans to those who have graduated or have completed a specific type of degree.
Because the interest rate is a weighted average and rounded up, borrowers won’t ever save money on interest by opting for a federal consolidation loan unless the loans are pre-2006 and have a variable interest rate.
The new interest rate would still be equal to the current interest rates in that situation, but it might save money in the future if the variable rates rise (the new fixed rate would stay the same).
The following table illustrates how a weighted average works.
In this example, there are three students that each have three loans.
Only loans that are in repayment or in the grace period are eligible for consolidation, and a Direct Consolidation Loan must include at least one Direct or FFEL Program Loan.
Loans that have been in default can be consolidated after three consecutive monthly payments have been made or if the borrower agrees to repay the consolidation loans under an income-driven repayment plan (where the payments are based on the income of the borrower).
The interest rate is primarily determined by the lender’s evaluation of the borrower’s credit history.
However, some lenders also factor in the borrower’s current financial and professional circumstances.
We start by discussing the basics of student loan consolidation and refinancing, and comparing the benefits and drawbacks of federal and private consolidation loans.
We then detail a step-by-step guide to using and choosing consolidation loans.
All types of federal student loans can be consolidated together except a Direct PLUS Loan that was taken out by a parent to help pay for a child’s education (student PLUS loans can still be consolidated).