Student Loan Consolidation Rates – There are many sources for rates for any loan consolidation on this page and it comes at a time when most college students are racking up debts over the course of their academic career. In fact, whether these be federal or private install agreements, the interest greatly affects how much the borrower will repay over the next twenty or thirty years. Most borrowers opt to combine it all at some point down the road.
Most students will have to take out both federal and private student loans in order to pay for all of their educational expenses. Both types of loans have their advantages but what most people do not realize is that these two loans can never be combined; like must be merged with like. If you are considering consolidation as a means for a more reasonable interest and lower monthly payment, you will still have two separate bills each month.
The good news is that for the majority of borrowers, the combined student loan consolidation rate is often lower than that of the separate accounts. So, even though you will still have two accounts to contend with, one federal and one private, it is often beneficial in both short- and long-term positions to take advantage of the lower rates and complete the consolidation process.
Like most things in the financial world, interest rates vary from day-to-day and from borrower to borrower; there are numerous factors that contribute to what an individual will receive as a consolidated interest rate. As each consolidation case is unique, it is difficult to judge precisely what the new interest rate will become. Generally speaking, the new rate will be the weighted average of the current loan rates.
For example, if a borrower has two loans with a seven percent interest rate and three loans with a five percent interest rate, the new rate would be calculated as follows:
There are five individual loans; two-fifths of the loans are at a 7% interest rate plus three-fifths at a 5% interest rate. Multiply the individual rates and the weighted average (rounded to the nearest eighth) becomes the new loan consolidation rate.
New Rate = (.07 x.40) + (.05 x.60)
New Rate = (2.8%) + (3%)
New Rate = 5.8%
Basically, the new consolidated rate is equal to the rates the borrower were initially paying but now the loans are combined into one payment that typically has a more flexible repayment program with affordable monthly installments.
Overall, consolidation benefits most borrowers by allowing longer repayment periods, smaller monthly installments, and a typically lower overall loan consolidation rate.