Read this tip to make your life smarter, better, faster and wiser. LifeTips is the place to go when you need to know about Student Loan Consolidation and other Student Loan topics.
The interest rate of current student loans determines future student loan consolidation rates. Federal student loans are either subsidized, or unsubsidized. Interest rates on subsidized loans are typically lower than interest rates on unsubsidized loans. Student loan consolidation rates are determined by calculating the average rate of existing loans.
For example, you receive a subsidized loan for the 2010 – 2011 school year with an interest rate of 4.50%. Then, you receive an unsubsidized loan for the 2011 – 2012 school year with an interest rate of 6.80%. After graduating in 2012, you decide to consolidate your loans so that you have one monthly payment instead of two. Your college loan consolidation interest rate is going to be somewhere between 4.50% and 6.80%. It is calculated based on the amount of each loan. If the loan amounts are equal, then the student loan consolidation rates will be approximately 5.65%.
Direct college loan consolidation is best for people with all government loans. The federal government will consolidate all of your student loans and will offer the lowest interest rate. However, if you have both private and government loans, then you may want to consolidate with a private, financial institution that can still offer you one monthly payment, but at a somewhat higher interest rate.
|Jennifer Mathes, Ph.D.|