Consolidating student loans get lower interest rate

18 Dec

Getting a federal consolidation loan isn’t usually considered as “refinancing” since the interest rate of the new loan is equal to the weighted average of the loans being consolidated.

With a private consolidation loan, a private lender writes a new loan that pays off the old loans.

Student loan consolidation or refinancing can be a great tool to use for those looking to save on, or simplify, their monthly payments, but going that route can also have serious consequences if not approached carefully – there are even student loan consolidations scams to be aware of.

That’s why we created this guide – to give borrowers a useful resource that empowers them to choose if student loan consolidation is right for them and which type may best suit their needs.

The interest rate is primarily determined by the lender’s evaluation of the borrower’s credit history.

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The new interest rate would still be equal to the current interest rates in that situation, but it might save money in the future if the variable rates rise (the new fixed rate would stay the same).

In short, the term “consolidation” is used to describe the process of combining multiple loans into a single loan while the term “refinancing” is used to describe the process of using a more advantageous loan to repay an older loan.

While refinancing is often used in other realms of finance (like mortgages) to describe repaying a single older loan with a new loan, consolidating with a private loan technically includes refinancing as well since the term and interest rate of the new loan are different from the old loans.

All types of federal student loans can be consolidated together except a Direct PLUS Loan that was taken out by a parent to help pay for a child’s education (student PLUS loans can still be consolidated).

However, private loans can’t be included in a federal consolidation loan.