Many college students take out several different types of government financial aid loans that are due to start being repaid shortly after graduation. When it comes time to repay these low-interest student loans, there are options for student loan consolidation, essentially merging multiple loans into one payment with a set interest rate.
Consolidating loans is essentially the process of gathering several smaller separate loans into one big loan package. A lender will assume the smaller student loans and restructure a repayment plan with the graduate. Most federal loans qualify for consolidation, such as the Stafford, Perkins, PLUS, HEAL and Direct loans.
A student loan consolidation is structured so that the interest rate is low and there is generally a cap placed on the interest rate. The interest rate on a consolidated student loan is figured as the weighted average. Since a college student may have several different loans, each with its own interest rate, an average is figured and applied.
The advantage to consolidating student loans is that there is one payment to make. Also, there are no upfront fees to consolidate loans. The consolidation option is available for both students as well as the parents of students, however the loans between a student and parent cannot be combined and consolidated. Likewise, married students with student loans cannot consolidate their individual loans together.
Make sure that if you want to consolidate your student loans that you do so within the regulated time period. It is not possible to consolidate student loans while a college student is still in school. Most student loan consolidations are arranged within six months after the student graduates, although consolidation can be done in certain conditions after that.
Any lender can consolidate student loans, so it's a good idea to compare the interest rates and payment programs that are offered. Some lenders do require a certain minimum amount in order to do a student loan consolidation, so check with the lender to see what that might be.
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