What you need to know about Student Loan Consolidation Rates


What you need to know about Student Loan Consolidation Rates

Students usually wonder about the best loan to take when pursuing studies. There are many benefits associated with Federal Students loans usually not available with private loans. For instance, unlike the private loans, the Federal Student loans have a cap and therefore not likely to rise over time. It is therefore important for those seeking private loans to inquire whether the interest rate is fixed or variable, if any fees are involved and whether there are repayment penalties involved.

The student loan regulations are dynamic. Therefore students need to be inquisitive about the interest rate charged by their lenders as well as the terms and conditions of their loans. Students must understand that interest rates as well as terms and conditions of loans are a moving target. A direct Consolidation Loan usually has a fixed interest rate for the duration of the loan. This rate is based on the weighted average of all the interest rates placed on the loans being consolidated. It is then rounded up to the nearest of an eighth of 1%. However the rate usually doesn’t exceed 8.25%.

Moreover, the interest rates charged on student loans depends on the type of loan taken as well as the date of disbursement. According to What you need to know about Student Loan Consolidation Rates.

The student loan regulations are dynamic

Therefore students need to be inquisitive about the interest rate charged by their lenders as well as the terms and conditions of their loans. Students must understand that interest rates as well as terms and conditions of loans are a moving target. A direct Consolidation Loan usually has a fixed interest rate for the duration of the loan. This rate is based on the weighted average of all the interest rates placed on the loans being consolidated. It is then rounded up to the nearest of an eighth of 1%. However the rate usually doesn’t exceed 8.25%.

Moreover, the interest rates charged on student loans depends on the type of loan taken as well as the date of disbursement. According to the National Association of Student Financial aid Administrators, the loans listed below are given at the indicated interest rates:

  • Subsidized Stafford Loans for graduate and professional students and Unsubsidized Stafford Loans for undergraduate students attract interest rate of 6.8% as from the beginning of July 1, 2020. Unfortunately professional students and graduates can no longer get Subsidized Stafford Loans. The Subsidized Stafford Loans offered to undergraduate students attract a different interest rate according to when they disbursed.
  • Loans disbursed between July 1, 2018 and June 30, 2019 attracts an interest rate of 4.5%.
  • Loans disbursed between July 1, 2019 and June 30, 2020 (which is the current rate) attracts an interest rate of 3.4%.
  • Subsidized Stafford Loans disbursed on and after July 1, 2020 may undergo an increased interest rate of up to 6.8%.
  • Federal Perkins Loans have an interest rate of 5%.
  • PLUS Loans have an interest rate of 7.9%.

For consolidated loans, the interest rate is calculated by rounding up the weighted average of the interest rate to the nearest 1/8th but it doesn’t exceed 8.25%.

Credit Score Effects on Loan Consolidation Rates

Since the Federal Student Loan Regulations are dynamic, the terms and conditions of students’ loans are dependent on the time the money was borrowed. For instance, the student loans before 2019 may have enjoyed very low interest rates. Students with private loans may find it difficult to get consolidated loans because very few companies still offer this. But the private students’ loans attract interest rates based on their borrowers credit score. That means if a student’s credit score improves significantly, he may enjoy a lower interest rate. But it should be noted that even though some private loans may seemingly have a lower interest rate, usually their rates keep varying.

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