Student Loan Consolidation Rates and Comparison

Consolidating loans may seem like an obvious choice for any student stuck up in the pile of debt. These loans have a cap of interest rate of 8.25%, meaning you won't have to pay interest rate any more than that. Since, one direct consolidating loan can take care of multiple smaller loans, your credit report gets a boost as it records a paid status for numerous loans, in spite of the same impending debt amount. Best rates for student loan consolidation can be obtained on federal student loans such as Direct and FFEL Stafford Loans, PLUS Loans, Federal Perkins Loans and others. Since, these loans may have a interest rate more than 8.25%, you will end up paying much less on a consolidating loan as it cannot have an interest rate beyond 8.25%. However, there are certain limitations on the benefits you can avail from this loan. Firstly, consolidating student loan provides maximum benefits on federal student loans only. Private loans may already have interest rates less than 8.25%, in which case you will end up paying roughly the same amount after consolidating your loans.

Student Loan Consolidation Rates

Student Aid on the Web defines the student loan consolidation interest rates as weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%, to a maximum of 8.25%. Following example will give you a clear understanding of private and federal loan consolidation rates.

Mark, a student has loan A of amount $10,000, loan B of amount $5,000 and loan C of amount $3,000. Mark is paying 6.25% interest on loan A with a monthly payment of $625, 8.5% on loan B with a monthly payment of $425 and 8.75% on loan C with a monthly payment of $262.5. Mark's total impending debt can be consolidated into a single loan of amount $18,000 ($10,000 + $5,000 + $3,000). The interest rate on a consolidated loan can be found out as,

$625 + $425 + $262.5 = $1312.5

Divide the above amount with consolidated loan amount of $18,000 to arrive at a figure of 0.0729. Converting it to a percentage you get an interest rate of about 7.29%. The last step is to round the interest rate to one eighth of 1%, which is 7.25%.

This was all about the estimate for student loan consolidation rates. Evaluate your options wisely before going for a consolidating loan. ---Ashvani kulkari sule