Consolidating graduate school loans

Getting a federal consolidation loan isn’t usually considered as “refinancing” since the interest rate of the new loan is equal to the weighted average of the loans being consolidated.

With a private consolidation loan, a private lender writes a new loan that pays off the old loans.

We start by discussing the basics of student loan consolidation and refinancing, and comparing the benefits and drawbacks of federal and private consolidation loans.

We then detail a step-by-step guide to using and choosing consolidation loans.

It takes borrowers an average of 21 years to repay their student loans, while 28% of students are in default (or miss payments for 270 days or more) within five years of entering repayment.

The picture painted by these statistics is clear: many borrowers are in over their heads with student loan debt and are looking for relief.

In short, the term “consolidation” is used to describe the process of combining multiple loans into a single loan while the term “refinancing” is used to describe the process of using a more advantageous loan to repay an older loan.

While refinancing is often used in other realms of finance (like mortgages) to describe repaying a single older loan with a new loan, consolidating with a private loan technically includes refinancing as well since the term and interest rate of the new loan are different from the old loans.

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However, private loans can’t be included in a federal consolidation loan.Only loans that are in repayment or in the grace period are eligible for consolidation, and a Direct Consolidation Loan must include at least one Direct or FFEL Program Loan.Loans that have been in default can be consolidated after three consecutive monthly payments have been made or if the borrower agrees to repay the consolidation loans under an income-driven repayment plan (where the payments are based on the income of the borrower).Some lenders require that the borrower’s debt-to-income ratio be below a certain threshold.Many lenders also factor in a borrower’s employment stability and prospects – they may even have minimum annual income requirements.

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