Basic Student Loan Reconsolidation Rules

There are some basic rules of student loan reconsolidation that have to be followed regardless of the type of reconsolidation being chosen. Student loan reconsolidation is the aggregation of several student loans into a single loan with a single monthly repayment.

Consolidation works out to a considerably reduced monthly payment compared to the sum of repayments against each loan.

Both, federal and private student loans can be consolidated though the rules governing the two types vary widely. In brief, federal student loans can be consolidated quite easily if the person concerned has a neat credit history. Consolidation of private loans involves more rigorous investigation into credit history and current credit profile. If you have taken more than one student loan, there’s no reason for you not to consider reconsolidation.

You should however keep in mind certain basic rules of consolidation as you go about the consolidation process. These rules include:

• Typically, you should have outstanding student loans totaling a minimum of USD 7,500 though you will find many more takers for your consolidation if your outstanding is USD 10,000 or more.
• No fee is charged for student loan consolidation.
• If you want to consolidate several student loans taken from a single private lender (instead of the federal government or the direct loan program), you must give that lender the first right of refusal to consolidate your loans before you start looking for other lenders.
• If you want to consolidate several student loans taken from different private lenders, you are under no obligation to consolidate with any of them and can seek a different lender for your loan consolidation.
• You can consolidate when still in school, or during the six-month grace period immediately after graduation, or when you are already making your repayments on your unconsolidated loans.
• Federal student loan consolidation can lead to interest rates as low as 5-7 per cent.
• Interest rates are lower when you are still a student or during your grace period.
• Rates on Stafford loans and PLUS (Parent Loan for Undergraduate Students) can change on 1st July every year. Though rates have increased in the recent years, the law has specified a maximum rate of 8.25 per cent for Stafford loans and 9 per cent for PLUS loans.
• You are entitled to loan forgiveness if you work in the US military, or teach, practice law or medicine in specified communities.
• You can consolidate federal student loans only once. Reconsolidation of private student loans however is at the discretion of the lender because private loans are technically regular market loans.
• The onus of finding a lender willing to consolidate your student loans is on the student itself. This, being a professional task, is best handed to a specialist student loan consolidator (i.e., an agent).
• There are prepayment penalties on consolidated student loans; so you can pay more than the minimum monthly installment to clear off your debt faster. If you do so, you must write the words ‘principal payment’ on the memo line of your check.
• Some lenders reduce interest rates on consolidated student loan repayments if you build a record on 36 months of timely payments. Do check out with your consolidator if the lender they are associated with provide this benefit.
• Federal student loans cannot be clubbed with other types of debts (such as credit card outstanding, car loans, and so on); private student loans can.

The above are only some of the basic rules you should keep in mind while initiating the student loan consolidation process. There are many more rules and sub-rules; these can appear complicated to the uninitiated. It is therefore best to seek a reputed student loan consolidator to consolidate your outstanding student loans. Knowledge of the basic rules outlined in this report will help you negotiate with your prospective consolidators.