Even if your rates seem high, t he Department of Education puts a cap on consolidation loan rates at 8.25 percent.
One major advantage of federal consolidation loans is that borrowers don't need a stellar credit score to qualify, they can apply any time (even if their loan is in default) at Loan gov, and they'll always get a fixed interest rate.
And once consolidated, they usually have variable interest rates, O'Connor says. Consolidating private student loans when interest rates are low (like now) "could potentially save thousands of dollars." It also means your interest rate can fluctuate higher as the years tick by.
"That creates tremendous flexibility, especially for families applying for loans for multiple kids."Students consolidating federal loans can do so through the Department of Education's website at Loan gov, by phone at (800) 557-7392 or by downloading a paper application at Loan gov/borrower/and mailing it in.
Almost all types of federal loans can be consolidated.
The difference is you'll need to apply through a private lender.
Some are better than others, so make sure to look at the varying terms of each one -- staying away from charges or origination fees and checking the maximum interest rate so you won't get burned down the road.
Once the application is submitted, the federal government estimates that it takes 60 to 90 days to officially complete the consolidation process.
Consolidating private loans works in a similar fashion, as far as paperwork goes.Betsy Mayotte, director of regulatory compliance for the student debt assistance group, American Student Assistance, makes sure to tell borrowers to stay away from consolidation loans that combine federal and private loans.Consolidating both types of loans excludes borrowers from federal protections.It also means if you're a new grad with little credit history, you might need a co-signer to be eligible.If a co-signer is necessary, O'Connor says borrowers should ask if there's a co-signer release option after a certain period of time."With (our student loan program), if the borrower makes 12 months of on-time principal and interest payments, they can request to release the co-signer," he says.Here's what you need to know before deciding to consolidate student loans.