Consolidating Private Loans

Consolidating Private Loans Related Information:

As a student you may need funds to finance your education. There are many types of loans that a student can avail of for their education needs. These loans can broadly be classified in the following two types:

• Federal Student Loans: Federal student loans are disbursed through the US Department of Education's Federal Student Aid programs. These loans are generally the easiest to get student loans and also have the lowest interest rates. Stafford loans, PLUS loans, Student Nursing Loans etc are some types of federal student loans.

• Private Loans: These loans include all types of non-federal student loans. So all the loans that you might take from any bank or any other financial institution, fall under the category of private loans. The most common private loans are Citibank student loans and the Sallie Mae Signature student loans. These institutions essentially offer unsecured (or sometimes secured) loans to students for pursuing their education. These loans are almost always charged at higher interest rates than the federal student loans.

A student can take any combination of federal and private loans to fund their studies, but when deciding to consolidate these loans, it is better to consolidate them separately and not in one consolidation loan.

Private Student Loan Consolidation

Private loan consolidation is a great way to consolidate practically all your education borrowing. With a private consolidation loan:

• You can combine your education-linked debt and credit cards.
• You will need to write fewer checks and will have a lower monthly payment.
• You can manage your loans better.
• You will need to deal with only one lender and make only one monthly payment for all your private loans.
• In a private consolidation, you can consolidate all those student loans that are not eligible for federal loan consolidation.

Consolidating Private Loans after Federal Loans

When you consolidate your federal loans, your credit score improves, as your monthly debt to income ratio will get better and your total number of outstanding loans will become less.

As private student loan consolidation is credit-based, it is to your advantage to consolidate federal loans first. By doing so, you can get a better and lower interest rate in your private student loan consolidation due to your enhanced credit score.

Who Can Consolidate Private Loans?

• As a parent, you can take one private consolidation loan to consolidate all the education loans that you may have taken for more than one child.
• Spouses can consolidate their private as well as federal student loans into one private consolidation loan.

Private consolidation loan can be taken for private student loans as well as federal student loans. But a federal consolidation loan cannot include any private loans. Even so, it is better to consolidate any eligible federal loans separately from private loan consolidation.

Consolidating Private and Federal Loans Separately

Federal loans have certain benefits such as lower interest rates, tax benefits, the loan can sometimes be pardoned for some kinds of service, and you also have the option of deferring payments on federal loans in case you go back to school.

None of the above benefits are available with private student loans. If you consolidate your private and federal loans together, it will become just one private loan consolidation, and all the benefits available with federal loans and their consolidation will be lost. Thus you should always consolidate these two types of loans separately.