# Finance

#student loan consolidation rates
#

Consolidating your student loans can lead to a better interest rate and lower payments. However, a bad deal can make you hurt in the long run. The determining factor in how easy getting a better rate will be is the type of loan you have. Federal consolidations are a lot easier to deal with than private consolidations. especially if those private loans are through multiple lenders.

Consolidating federal loans is a fairly easy process that can be applied for online through the Department of Education. When you consolidate federal loans, the interest rate you pay ends up being the weighted middle of your previous interest rates rounded up to the nearest 1/8 th of a percent.

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The weighted middle on federal loan rates is calculated by first finding multiplying each loan balance by its respective interest rate. Doing this yields the “per loan weight factor.” For example, if you had a loan of \$20,000 with an interest rate of 8%, the loan weight factor would be \$1,600. After all these are calculated the sums are added together. The per loan weight factor is then divided by the total loan amount. If you had the \$20,000 loan mentioned before and a \$10,000 loan with a weight factor of \$1,000, the math would look like this

1. \$1,600 + \$1,000 = \$2,600
2. \$2,600 ÷ (\$20,000 + \$10,000) = 0.087%

Therefore when you consolidated your federal loans you would end up with a rate 8.7%. That is still a pretty steep rate, but fortunately the consolidated rate for federal loans caps at 8.25%. No matter what your weighted middle actually is, the applied rate will never exceed 8.25%.

Unfortunately, the same is not true for private loans. Federal rules now stipulate that filing for bankruptcy does not discharge student loan debt. This gives you very little leverage with private loan companies as they know you can’t get out of the loan no matter what. Consolidation is still possible, but the rate you will get depends on a much larger set of factors. Check around with different lenders as some get better rates than others. Often smaller banks have better rates than large corporations. Be careful not to take a plan that just lowers your monthly payments without lowering your interest rates unless you are in a financial bind. The smaller payment amount will only lead to more interest in the future and ends up costing you more.

Your rate will most likely be determined by your credit score. Before you go shopping obtain a credit report. If your credit is low, try to make some timely payments on your loans in order to up your credit score before consolidating.

Look into bonus discounts you can get while consolidating. Many private lenders offer small reductions in your loan interest rate if you allow them to automatically deduct it out of your checking account each month. Depending on the private lender, this can be between 0.25% and 0.5%. Though that may not seem like a lot, every bit helps when you are trying to get your debt down. Some private lenders also offer a 1% discount if you faithfully make payments for between two and two-and-a-half years.

There is no easy way to deal with student loan consolidation. Just remember to take your time when making choices, as they can affect your future for decades to come. Consolidating your loans is not something to rush.

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