Loans availed by students for the purpose of financing their education generally ends up becoming totally unmanageable both in terms of liability and their repayment. This is when the concept of reconsolidation aptly solves the problem. Under reconsolidation all the loans are aggregated into a single loan with a single monthly payment of liability. This not only reduces the monthly liability but also provides flexibility in repayment, thereby enabling improvement in credit score.Different Types of Reconsolidations:There are basically two kinds of reconsolidation namely Federal and Private. Federal Consolidation is an easy process and maintaining a decent credit score makes it all the more simple. Private Loan Consolidation is complex involving thorough verification of the credit score. The interest rates are high when compared to Federal Loan Consolidation.Rules on Reconsolidation:The following rules are to be observed before proceeding for consolidation of your loans.o The outstanding student loan balance should be minimum $7,500.o No fee charged for Student Loan Consolidationo Where the student’s loan is taken from a single private lender, he should be offered the right to consolidate first. On his refusal you can look out for other lenders.o Where the loans are taken from different private lenders, you can directly proceed to consolidate it with a different lender altogether.o Consolidation can be done either at the time of graduation or six after completion or after having started to repay the loans.o Interest rates on Federal Consolidation can be as low as 5% to 7%o Rates are lower when you are still a student.o Rates on Stafford and PLUS loans change every 1st of July. Law specifies maximum rate of interest on these loans.o You are entitled to a loan forgiveness program provided you perform certain specified services.o Federal loans can be consolidated only once. While private loans being regular loans are consolidated at the discretion of the lender.o Locating a lender for consolidation is left to the student. Hence it would be worthwhile to handover the task to an agent.o You can repay your debt faster by increasing your monthly payment and specifying that it is towards the principal.o Timely repayment enables you to avail certain discounts on interest rates.o Federal Loans cannot be consolidated with other kinds of loans, while private loans can.
