When we speak of student loan consolidation, we are referring to the process of combining multiple loans that was obtained from different sources, and then binding it into just a single loan. Loan mergence does not entirely raise or even lower the total amount of the student loan. But, it does make some important changes. For instance, if before an individual makes multiple payments, now that it is consolidated, payments will become reduced to only one. And if before, current loans come with variable interest rates, the combined loan will now be at a single fixed interest rate for its entire lifespan. As for student loan consolidation, you are only allowed mergence once until you take on extra student loans.
Lawmakers have recognized the commitment for loan consolidation and have made their effort in regulating the entire process. These regulations prevented all lenders from imposing control over student borrowers. Typically, there are no extra charges and unnecessary fees for student loan consolidation; as well as there are no interest rates in the process of consolidation because it is currently determined by a formula. This particular formula is simple: just get the weighted average of the combined loan interest rates, then round it to the nearest one-eighth of 1 percent higher.
Reasons for student loan consolidation
To summarize this, if you get a variable interest rate student loan, you can immediately consolidate them to get preference of the lowest interest rates of the consolidation program. The primary favor that a student will gain in immediate consolidation is the locking of the current low interest rate for the entire loan term. However, this will prevent any reconsolidation in the future if ever the prevailing interest rate decline once more. A student can even profit from these loan consolidation. For instance, if the consolidated loan got the current rate of 2.5%; and the funds that you have used to pay those loan in the savings account gets an interest rate of 3.25%, the remainder between those rate discrepancies will turn out as your profit. Another thing, these student loans’ interest are typically tax-deductible, the after-tax is another profit you can gain.
Also, lenders cannot just change the terms of student loan consolidation, however, they must strictly differentiate their loan products in order for them to attract most borrowers. For instance, lenders can propose special services and discounts, which usually involve interest rate abatement and even regular online access. You can also have your loan consolidated directly through government agencies, however you may not be able acquire any special student discounts.
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