Consolidate Private Student Loans
The private student loan volume today is growing more than federal student loans. Private student loans are growing by more than 25% a year in volume. Students are seeking out multiple lenders to give them student loans to help pay for college. Private student loans usually have a higher rate than federal Stafford student loans. It makes sense to check out different banks and lenders for a lower rate.
Consolidate Private Student Loans
As you approach graduation you will start to realize the large balances of all your student loans and the high payments. You should consider a plan to consolidate private student loans into one loan and one payment. By consolidating your student loans into one payment you can have a lower monthly payment. A lower monthly payment is the number one reason most people consolidate private student loans into one loan.
Rates on Private Student Loans
As I stated early, regarding Federal student loans have lower rates than private student loans. The private student loans usually have an interest rate of LIBOR +2.0% with no fees. Unfortunately you do have to qualify with for these loans. You need to have a high enough credit score to receive a loan. In addition you may need to have a parent as a cosigner for the private student loan. Some lenders use the Prime Lending Rate to calculate the interest rate on the student loan. Borrowers should prefer the use of LIBOR to the Prime Lending Rate. Over the long term interest rates based on LIBOR will be less expensive than a loan based on the Prime Lending Rate due to the spread between the two interest rates.
Borrowing Limits of Private Student Loans
Private student loans have higher borrowing limits than federal student loans. Many banks will lend over $120,000 and some up to $250,000. Banks will also offer you up to 25 years to pay back the loan. This is why it makes sense to consolidate private student loans into one payment or loan after you graduate. You need to take the time to research the terms and conditions of the loan offers you receive. While I was researching information for this article I discovered there are at least a dozen or more banks that offer private student loans.
Some banks offer the LIBOR interest rate plus 3%. You can also receive a fixed rate loan from 7% to 9% depending on the bank. Most banks do not charge any fees for a loan.
Adjustable Loans vs. Fixed Loans
One important tip on LIBOR or Prime Lending Rate loans is the interest rate is adjustable. An adjustable rate loan may be a good idea while you are in college because typically adjustable rates are lower than a fixed rate.
However, once you graduate and you tally up the grand total of all your student loans it is time for a fixed rate loan. You are not going to pay off most student loans in one or two years. A more likely time frame is 5 to 15 years. Over that period rates can change dramatically. With a fixed rate loan you can make sure your student loans payment don’t increase every single year.
Remember the Mortgage Crisis?
As a side note: Adjustable rate mortgages is the reason so many people lost their homes. At first the payment was very manageable, but when rates started to increase the payment became too high. The result was all the foreclosures we have seen the past three or four years. Banks will be looking at helping you to consolidate private student loans because they want all the interest from a combined loan. For example if you have a $20,000 loan with ABC Bank, another $40,000 loan with XYZ and finally another $30,000 with DEF Bank all three probably have a different interest rate.
Why not consolidate all your private student loans into on loan of $90,000?
You will have a lower monthly payment overall and you can start saving money to purchase a home or car. As I stated earlier make sure you find a fixed rate loan instead of an adjustable rate loan.
You do not want to be five years into repaying your consolidated private student loan just to have the payment skyrocket. Make sure you read the fine print on the loan forms to make sure you understand all the terms and conditions of the loan.
Popular Private Student Loans
Private student loans have become more and more popular over the past couple years. Lenders are eager to loan money for college expenses and students are eager to go to college.
After you graduate from college take the time to consolidate private student loans into on payment. You want to find the best possible interest rate and terms because it will save you a lot of money in the long term.