The student loan burden grows higher and higher, with default rates growing by the day. With rising school costs and a slowly recovering economy, many people find it difficult to meet their student loan burden. Instead of struggling with your current payment, you have student loan consolidation options for private and federal student loans.
Private Student Loans
Private student loans are taken out through banks and other loan providers. These loans are not federally guaranteed and are based on whether you qualify with your credit scores. You may have taken out these loans with the help of a co-signer, such as your parents. Typically, you take out private student loans to cover anything that scholarships, grants, and federal student loans are unable to cover, such as high tuition costs that exceed your financial aid package.
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Federal Student Loans
Federal student loans, also known as direct loans, are given directly through the government and are need-based, instead of credit-based. You have a cap on the amount you take out from these loans each year. This cap slowly goes up as you progress through your schooling. The main difference between a federal student loan and a private student loan is that if you default on your federal loan, the government pays the defaulted amount to the lender. Federal student loans may be subsidized, which means the government pays your loan interest while you’re in school, or unsubsidized, which means that you’re responsible for the interest accumulating on the account.
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What is Student Loan Consolidation?
If you took out a combination of loans, you deal with multiple payments and keeping track of the loan amounts. This can get quite confusing quickly, especially if this is the first type of installation loan you’ve ever had to deal with. The loans probably also have different payment schedules, interest rates, and payment methods. Instead of struggling to keep track of everything, loan consolidation combines all of these loans into one.
The company you use for the loan consolidation pays off your original debts and gives you a new loan that combines all of your loans. You have one payment and one interest rate. This simplifies the process greatly. One potential complication is if you’re trying to combine private and federal student loans under one consolidation loan. Not all lenders are willing to combine these two products, and you might need help finding your way through to the ones who do.
In addition to lowering your interest rate and fixing any payment hassles, student loan consolidation is great for reducing your monthly payment. If you are having trouble making your payments and your lender doesn’t have any options to help out, a loan consolidation can be the difference between making your payments and defaulting on your student loan.