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Differences in Consolidation Loan Types
When you are taking out a consolidation loan, you can quite easily become confused about many aspects. It is important that you understand every aspect of the loan process from start to finish.
An important aspect of consolidation loans that you need to be aware of is that there are different types of loans you can consolidate. Whether you are considering private consolidation or federal consolidation loans, you should understand their differences to know how to consolidate your loans.
Private Consolidation
- The FFEL (Family Federal Education Loan Program) allows you to avail private consolidation loans. You can consolidate through private banks, credit unions, secondary markets and other types of private lenders.
- Private consolidation requires that you have a credit check before they will consolidate your loans. If you have bad credit there is the possibility that you will not be able to consolidate.
- You can have a cosigner if you have less than great credit. In many cases, the cosigner can be removed from the contract after a particular number of consecutive payments.
- You can have any loan consolidated through private lenders.
- You can only consolidate after you have left school and are at least within the grace period
Federal Consolidation
- You can consolidate your federal loans under the William D. Ford Federal Direct Loan program and the government provides the consolidation loan.
- There is no credit check for these loans and they are relatively easy to get.
- You will not need a cosigner and there are many programs that allow extended terms.
- Only federal loans are able to be consolidated in many cases. Some types of federal loans are not eligible for federal consolidation.
- There are four main types of repayment plans: standard, graduated, extended and income contingent. You can choose the plan that fits you best and even change plans if you find that your financial situation had changed.
- You can consolidate while you are enrolled in a program.
Similarities between Private and Government Consolidation
- Even though there are significant differences between the loan types for consolidation, there are some similarities between government and private consolidation of federal loans.
- Neither has a fee for early repayment or origination.
- You can consolidate on defaulted loans in both cases.
- Both ways offer borrower benefits and repayment incentives that can lower your interest rate.
- In both cases you have only one installment to make for all of your loans. This installment is typically lower than the combined monthly payments of the individual loans.
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