Student Loan Consolidation Rules
There are some big differences between the way that private and federally-backed student loans are handled. Student loan consolidation can be done with either private loans or through federally-guaranteed student loan consolidation rules. Often, the difference in the rule requirements are what decide the lowest student loan consolidation rate.
If your current student loans are already federally-backed, you can usually get federal consolidation without needing to have a credit check. There are, additionally, caps on the interest rate (currently 8.25%), no limit to the total amount that can be used in consolidating federal student loans, and the loan is backed by the U.S. government.
This doesn’t mean that it’s not worth looking into consolidating federal student loans with a private loan, though. Consolidating private student loans has fewer rules and handicaps for the lender, thus it often can result in the lowest student loan consolidation rate because the lender can utilize more robust considerations such as your credit rating. So if you have decent credit, you may find that your rate is considerably lower without federal consolidation.
A few things to consider when you look at your loan options are:
- Has your credit score risen 50 or more points since you last applied for or qualified for student loans?
- Do you have a co-signer on your loans?
- Are your current loans at a relatively high interest rate (higher than 6%)?
If your credit score has risen sharply since you last applied, as is often the case when you leave school and enter the work force full time, then you may have a better student loan consolidation opportunity. If you have a co-signer, such as your parents or a family member, on your loans and would like to remove them from responsibility for the loans, that’s a good reason for consolidating private student loans too. Finally, if your current loans are at 6% interest or higher, you may be able to get better rates under student loan consolidation rules with your better score and situation.