The best student loan consolidation rates will help you decrease your borrowing costs, monthly payments, and maybe even pay off your student loan at a faster rate than you planned. We’ll show you how to get the best student loan consolidation rates before you decide to make the move to a new lender, or refinance at your existing student loan company.
Consolidation Loan Rates
Student loans are already low interest as most are issued with the understanding that the lender has very little risk to the borrower. To put it simply, student loans cannot be discharged in bankruptcy, and the money must be paid back, regardless of the situation. Therefore, when consolidating your student loan balances, realize that the best loan are those that come from student loan lenders, since they have the lowest APR.
Steps to Consolidation
Here are a few steps you must take to get the best student loan consolidation rates:
1. Identify cost of each debt – The first step is to identify your cost of borrowing money from each individual loan. Stafford loans may come in only one monthly bill, but if you borrowed money for four years of college, then you actually have four different loans, which may have four different interest rates. Organize these debts into different categories. Your highest interest rate debts should be the first priority.
2. Fixed or variable rates – After ordering your student loans from the highest interest rate to the lowest, you should then separate them by variable rates vs. fixed rates. The difference between the two is important, as fixed rate debts are not going to change with changes in interest rates. Variable rate loans may become more or less costly over time.
3. Stafford differences – If you have Stafford loans, identify which student loans are unsubsidized and which are subsidized. Unsubsidized student loans are those which the interest rate is paid entirely by you. Subsidized student loan debt comes with lower interest rates because the interest rate is paid partially by Congress, which allocates funds to make education less expensive. You absolutely do not want to consolidate fixed-rate subsidized loans, as consolidating a subsidized loan will likely result in higher, not lower, monthly interest.
4. Duration – Consider the differences in duration for your existing debts. Find the average duration, and seek to find a consolidation loan which matches this average time to payoff. The duration of the loan affects the interest rate, the time it takes to pay off the balance, and how much interest you pay over time.
Best Student Loan Consolidation Plans
The best way to consolidate your student loan debts is to do it in the order of interest rate. All loans which are currently costing more than your future consolidation loans should go into the consolidation loan, and thus reduce your minimum monthly payment.
To speed up the process, consider taking out two consolidation loans, one short-term, and one long-term. By putting smaller balances in a shorter term loan, you’ll be able to pay them off faster, and at a lower rate of interest. Remember, interest rates rise with the length of the loan. A 10 year consolidation will have rates far lower than a 20 or 30-year student loan consolidation.
Ideally, seek to turn all variable rate loans into a fixed-rate loan, which will reduce your risk to the possibility of rising interest rates. A variable rate loan is especially dangerous because higher costs of borrowing cannot be predicted, and in many cases, rising costs of borrowing reflect greatly in your monthly payment. A 20-year student loan consolidation plan with a rate of 5.5% would cost some $343 per month. A 2% rise in interest rates, however, would make the same loan cost $402 per month. Rising rates will always negatively affect your loan, and you should plan to insulate yourself from such risks by going for a fixed rate loan whenever you can.