What You Should Know About School Loan Debt Consolidation

What is Student Loan Consolidation?

Consolidation Loans combine several student or parent loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. It is very similar to refinancing a mortgage. Consolidation loans are available for most federal loans...including FFELP (Stafford, PLUS and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans and Direct loans. Some lenders offer private consolidation loans for private education loans as well. School Loan consolidation is among the most important and advantageous financial decisions recent graduates and former students can make.

Why Do Most Students Consolidate Their School Loans?

- To lower monthly payment amounts by up to 45%

- To give them an opportunity to build their credit rating

- To make only one student loan payment each month

The Scoop on School Loan Consolidation Discounts.

Why Lenders Offer Loan Discounts.

The Higher Education Act of 1965 sets the maximum interest rates and fees on student loans. This helps protect loan gouging by student loan lenders, making access to student loans relatively easy for those who are in need of financial aid. Nothing, however, prevents a lender from charging lower interest rates and fees. (The illegal inducements regulations prevent lenders from providing immediate rebates, which would be similar to paying borrowers for their loans. However, most lenders work around these restrictions by instituting a one month delay in rebate discounts, or by providing the discounts when the loan enters repayment)

Lenders offer loan discounts for competitive reasons. Originally the competition was with the Direct Loan program. However, with the repeal of the single holder rule, lenders are increasingly competing with each other for the highly profitable student loan market. If you currently have multiple student loans, you should get the proper information regarding consolidation of those loans.

By Christian Rogers

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