7 Essential Rules and Regulations for Student Loan Consolidation You Should Know
Student Loan Consolidation: When consolidating student instant loans, it’s important to know what you’re getting into first. As with any financial decision, do your homework before drawing on the dotted line. Consolidating loans isn’t a difficult process, but there are several rules and regulations that you should know before deciding to merge your loans into one easy-to-manage loan. This is a list of some of the most important rules and regulations regarding student loan consolidation. Make sure you understand each of these rules before proceeding with the consolidation loan.
Student loan consolidation is free
Obtaining a student consolidation loan is a free process, so never pay a consolidation fee. If the lender charges an upfront fee to consolidate your student loans, it is most likely a scam and you should take your business elsewhere. This scam is often referred to as an “advance credit scam” and is relatively common in the student loan world.
You cannot consolidate while you are still in school
You cannot consolidate your student loans until your loans have entered the grace period, which is six months after you graduate or leave school. You can also consolidate once the loan repayment begins, although before that point you should consider consolidating. It may not be useful for everyone, but it’s definitely worth checking out the numbers to see if it would save you money and make your loans easier to manage.
You can only consolidate student loans in your name
This rule seems pretty obvious, but in some cases where the student is married or has his parent’s name on one of the student loans, he may come into play. Students and parents can consolidate their student loans, but they cannot combine them into one consolidation loan – they must be separate. The same goes for married students who both have a student loan. Since 2006, married students cannot combine their student loan into one consolidation loan – however, they can each have their own consolidation loan.
Students and graduates can consolidate with any lender
There are no restrictions limiting which lenders are eligible for student loan consolidation, so you can choose any lender you want. This allows you to look for the lender with the best interest rates and incentives. Keep in mind that most lenders require you to have a minimum balance of $ 7,500 in total or sometimes higher.
Any federal student loan is eligible for consolidation
Any type of federal student loan can be consolidated, including some student loans. That said, you can only consolidate an existing consolidation loan once, but not in all circumstances. To re-consolidate a consolidation loan, you must add a previously unrecognized loan to the consolidation. In this case, your interest rate would be reconfigured using a formula to weight the old interest rate with the new rate caused by the student loan being added to the mix. Keep in mind that with a loan consolidation loan, a weighted average of all included loans is used to determine the total interest rate. If you re-consolidate in the future, your interest rate will not reset completely.
Consolidation loans offer longer repayment terms
Federal loans come with standard 10-year repayment plans. When consolidating loans, you can extend these terms to 12-30 years, depending on how much you owe. However, as with any loan, it is not recommended to extend the term of the loan as the interest charges will be higher the longer the loan is in existence. It is recommended to pay off the loan as soon as possible. That said, extending the consolidation loan amortization plan can help people better pay the lower payments caused by a longer amortization plan.
There are no prepayment penalties
You can pay off your loan consolidation at any time without any risk of prepayment penalties. I highly recommend paying off the consolidation loan as soon as possible to avoid some of the interest charges and relieve you of the financial burden as soon as possible. Just make sure that when you make additional payments each month, you inform the lender that the extra amount should go towards the principle of the loan rather than future payments.