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Consolidated Student Loans

Hazel Said:

If I have already consolidated my student loans, is there still a way to "refinance" for a lower rate?

We Answered:

The regulations for the refinancing of Federal student loans are very different from mortgage refinancing. Whereas you could refinance a mortgage as often as you want (well, sort of), reconsolidation isn't technically supposed to be possible for student loans. There a a few loopholes, though. The only way you might be able to "re-consolidate" would be:

(1) if you borrow a *new* Federal student loan. If you have another loan that is unconsolidated, you can apply for a new consolidation loan that would combine this new loan with your old consolidation loan. However, this would only lower your rate a little bit since your new interest rate would be based on the weighted average of the rate for your new loan and the rate of your old loan. So, if you currently have a Federal Consolidation Loan of, say, $20,000 at 7.25% and you borrow a new $5,000 Stafford Loan at 4.7%, you'd have four times as much at 7.25% than you do at 4.7%, so your consolidated rate would become 6.75% -- not much lower, huh?

That said, you won't be able to obtain a new Federal student loan unless you are a student, so this may not even be a viable option for you.

(2) if you "have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to [you]," you can obtain a Direct Consolidation Loan, which is the other type of student loan consolidation that the federal government offers.

This might be your best option. Just make sure that your current loan is a Federal Consolidation Loan (if it's already a Direct Consolidation Loan, you're out of luck). If it is, check the Dept. of Ed's website to see if you are eligible:… There's no credit check on these loans, so it can't hurt to try!

There are private companies out there that claim to be able to "reconsolidate" any federal consolidation loan. These companies are SO disreputable that I hesitate to even mention them. DON'T DO IT. They're in business only to make money off of you. Many of them don't even deal in Federal Consolidation Loans, so you could end up with a "reconsolidated" private loan with horrible terms and none of the benefits and security of the Federal student loan that you started with.

Good luck!

Arlene Said:

how does consolidated student loans affect your credit score if there is no payment due?

We Answered:

credit score is affected by many things #of account open amt. owed payment history just to name a few

Dolores Said:

If I consolidated my student loans, would that raise my credit score?

We Answered:

There is no definite answer on that question because there too many variables involved. Having too many open accounts affects your score negatively as well as having to many accounts with balances. At the same time each of these accounts adds age to your overall credit history which is a good factor (assuming that they all are paid as agreed). If you have paid any portion of your balances then your credit utilization is less then 100% on these loans. This factor impoves your score. Once you consolidate your loans your new loan's utilization will become 100% again (since the total limit of your loan will be a sum of all your balances) and that may decrease your score for a certain period of time. Openning of a new account usually decreases a credit score since it indicates that your are seeking for a new credit; it also impacts an average age of your accounts making it shorter.
Overall IMHO consolidation is meant to save money on interest or on your monthly payments but it is unlikely that it is going to help your credit score. In fact it is more likely that you should expect a decrease for at least a short period of time.

Rene Said:

Will there be a penalty for early repayment of my consolidated student loans?

We Answered:

It depends on the terms of your loans. Some privately consolidated loans do have prepayment penalties.

Phyllis Said:

Is there a way to un-consolidate student loans that you already consolidated?

We Answered:

No. Your consolidation loan is binding. There is no going back once you've done all the paperwork and the process is complete. However, double check with your lender. I don't believe you lose deferment options (like if you return to school) but you do lose many cancellation provisions by consolidating.

Ruth Said:

Can federal and private student loans be consolidated?

We Answered:

In the United States the Federal Direct Student Loan Program (FDLP) include consolidation loans that allow students to consolidate Stafford Loans, PLUS Loans, and Federal Perkins Loans into one single debt. This results in reduced monthly repayments and a longer term for the loan. Unlike the other loans, consolidation loans have a fixed interest rate for the life of the loan.…

Consolidation loans have longer terms than other loans. Debtors can choose terms of 10–30 years. Although the monthly repayments are lower, the total amount paid over the term of the loan is higher than would be paid with other loans. The fixed interest rate is calculated as the weighted average of the interest rates of the loans being consolidated, assigning relative weights according to the amounts borrowed, rounded up to the nearest 0.125%, and capped at 8.25%. Some features of the original consolidated loans, such as postgraduation grace periods and special forgiveness circumstances, are not carried over into the consolidation loan, and consolidation loans are not universally suitable for all debtors.

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