Student Loan Consolidation Rate
Student consolidation loans basically combines together several outstanding student and/or parent loans into one account. Thus making it easier for the student/lender to pay it off as he or she only has to worry about just one payment each month unlike the several payments he or she made before. Consolidation loans are available for most of the federal loans which include the FFELP, Perkins, FISL, NSL, HEAL, Health Professional Student Loan as well as the Guaranteed Student Loans and Direct Loans. There are also lenders who offer services such as the private consolidation loans for those who have private education loans.
Student consolidation loan rate is the total average of the interest rates on the loans that are included in the consolidation and then rounded up to the nearest 1/8 of a percent then capped at 8.25%. An example of this would be a student who just subsidized his Stafford Loans which he got on or after July 1st 2006. These Stafford loans already have fixed interest rates of 6.8%. If they are consolidated, the student consolidation rate of these loans would now become 6.875% which increases the total interest rate but not by a lot.
What if the borrower has loans which all have different interest rates, then the weighted average would fall somewhere in between. An example of this would be a student who has a Perkins loan of $5,000 with an interest rate of about 5.0% and he also has an unsubsidized Stafford loan amounting to $10,000 with an interest rate of about 6.8% the computation for this would be
$5,000 * 5.0% + $10,000 * 6.8
——————————— = 6.2%
$5,000 + $10,000
The total average falls to 6.2% which is then rounded up to the nearest 1/8th of a percent which would give us a consolidation loan rate of 6.25%. Do take note of the fact that this weighted average does not alter the cost of the loan. It preserves the loan’s cost structure through the inclusion of each interest rate up to the point where it applies to a part of your overall loan balance.
If you are consolidation loans that have varying interest rates, your weighted average consolidation loan rate would always fall somewhere in between. Do not believe anyone who will tell you that you can save money because they are offering you a lower interest rate. The interest rate might appear lower than your highest rate but it will never be lower than the lowest of all your interest rates. It is also important to know that the total amount of interest you pay during the entirety of your loan will be the same.
If by any chance, all these numbers and figures confuse you or if you want more detailed information do approach a consolidation agent. Ask them about what you want to know. Doing this would help prevent you from getting into something that you don’t understand which could lead to some very complicated financial problems. Also, remember that not every good offer is good. Be doubtful of very low student consolidation loan rate offers, these offers might have hidden charges that they would ask you to pay once you’ve signed the deal.