Distinction between Federal Student Loan Consolidation and Private Student Loan Consolidation

Students who seek to consolidate private student loans need to meet slightly different criteria than those former students who have chosen to consolidate their multiple federal loans. The following article focuses on those different criteria. Bear in mind, however, that the benefits of the consolidation process are the same, regardless of the sort of loans that a consolidation expert has managed to wrap together. A consolidation loan allows a former student to make a single, low interest payment to a lender each month. Moreover, a consolidation loan can provide up to thirty years time to the former student that faces the challenge of paying off his or her student loans.

Both recent graduates who hold a group of federal student loans and recent graduates who owe money on two or more loans from a private lender can lump their multiple loans together. They can consolidate their loans, and thus enjoy a simpler life—the ability to make a single monthly loan payment. Still, consolidation of federal student loans follows a certain set of guidelines, and consolidation of private loans adheres to the rules agreed to by private lenders.

What then is the distinction between federal student loan consolidation and private student loan consolidation? How are the processes alike, and how are they different? The answers to those two questions can be found in the following paragraphs.

Both the consolidation of private loans and the consolidation of federal loans hand to any recent graduate a terrific set of benefits. Both processes permit a recent graduate to experience the financial stimulus that comes from having a loan with a lower interest rate. Both processes allow the recent graduate to reduce his or her financial obligations by making a single monthly payment. Both processes can proceed, without requiring the graduate to come up with any prepayment penalty. .

The foregoing paragraph highlights the features that the two processes have in common. Still, the consolidation of federal student loans does not follow exactly the same course as the consolidation of private student loans. Each of those processes places certain, distinct demands on a recent graduate, or on the parents of that graduate.

If, for example, a recent graduate with two or more private student loans wants to consolidate those loans, that former student needs to have a co-signor. That former student must also have on hand all of the details about his or her current student loan portfolio. In addition, that student should stand ready to pass an inevitable credit check.

If a former student with private student loans can meet the above-mentioned criteria, then that student should encounter few problems, when going after a consolidation loan, A former student, one who holds federal student loans, rather than private loans, does not need to meet those same criteria. Moreover, a recent graduate who also holds a number of federal student loans does not need to pay an application fee or an origination fee, if he or she seeks a consolidation loan.

A former student who has received money from PLUS loans does need to keep in mind the collateral that his parents could offer, should they seek to consolidate those PLUS loans. Parents and not the adult children need to initiate the procedure for consolidation of any PLUS loans. Recent graduates should not consider consolidating one of their own federal loans with a PLUS loan. Students with federal student loans do not have that option.

Of course, any student with federal student loans must remain aware of the fact that federal laws change on a regular basis. At one time, for example, recent graduates holding student loans could wed, and the married pair could then consolidate their two groups of loans into a single loan. In July of 2006, a new law took that possibility “off of the table.”

Students who have obtained forbearance or a deferment on their federal student loans should pray that no new law soon changes their ability to seek a consolidation of those deferred loans. A former student who holds Federal Perkins Loans, subsidized FFEL Strafford Loans or subsidized Direct Stafford Loans, and a former student who has managed to defer payment on those loans, can consolidate those deferred loans. Such a move would relieve that former student of the need to pay the principle or the interest on those same loans.

A former student who holds unsubsidized FFEL Strafford Loans or unsubsidized Direct Stafford Loans, and a former student who has received deferment or forbearance on those loans should not hesitate to go after a consolidation loan. That student can consolidate his or her deferred loans, and can then enjoy freedom from the need to pay the principle on those same loans. The former student of mention would, however, need to pay the interest on those unsubsidized loans.