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Information and description:
In the United States, federal student loans are consolidated
somewhat differently, as federal student loans are guaranteed
by the U.S. government. In a federal student loan consolidation,
existing loans are purchased and closed by a loan consolidation
company or by the Department of Education (depending on what
type of federal student loan the borrower holds). Interest
rates for the consolidation are based on that year's student
loan rate, which is in turn based on the 91-day Treasury bill
rate at the last auction in May of each calendar year.
Student loan rates can fluctuate from the current low of 2.77%
to a maximum of 8.25% for federal Stafford loans, 9% for PLUS
loans. The current consolidation program allows students to
consolidate once with a private lender, and reconsolidate
again only with the Department of Education. Once the student
has consolidated their loans, the loans are set to a fixed
rate based on the year they consolidated; reconsolidating
does not change that rate.
Federal student loan consolidation is often referred to as
refinancing, which is incorrect because the loan rates are
not changed, merely locked in. Unlike private secton debt
consolidation, student loan consolidation does not incur any
fees for the borrower; private companies make money on student
loan consolidation by reaping subsidies from the federal government.
Student loan consolidation can be beneficial to students'
credit rating, but it's important to note that not all federal
student loan consolidation companies report their loans to
all credit bureaus; SLM Corporation (formerly Sallie Mae)
does not report to Experian or Transunion, which means that
students will have differing credit scores at Equifax, Transunion,
and Experian.
See also:
•
List
of Finance Topics
• Adverse Credit History
• Bankruptcy
• Debt
Consolidation
• Personal
Finance
• Credit Score
This
article is licensed under the GNU
Free Documentation License.
It uses material from the Wikipedia
article "Debt Consolidation".
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