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Student loans are necessary for most students who are pursuing a degree at an institution of higher education. There are distinctive types of loans, and borrowers should always understand the differences between loan offers before signing onto an agreement. Credit checks and other qualifying information must be submitted during the application process, so always make sure that you have your financial information readily available before applying for a consolidation loan.

Federal and Private Student Loans

There are two main types of loans available to borrowers, and they both should be understood on their own terms. For example, federal loans are made through the government, and these payments are made directly to the school. In addition, consolidation for federal loans often does not lower the total interest rate on the loans, and this can deter some students from seeking out a loan consolidation program. The new consolidated loan can be extended over a period of time that lasts up to 30 years.

Private student loan consolidations are also available, but these offers only apply to loans that are taken out through a private lending institution. As a result, the interest rate on the consolidated loan might be substantially lower, and the final payment can be reduced in a manner similar to the effect on your monthly payment after refinancing a mortgage or a car. Private lenders have more leverage than government-issued loans, which are subjected to regulations. The private lenders might offer more favorable terms in some cases, but this is often determined by your credit score and other financial information.

Qualifying Criteria

Lenders use the same devices on student loan consolidation as they use on other forms of credit. For example, if you are taking out a mortgage on a home, they will look at your income level, educational background, payment history and credit score in order to determine your ability to qualify for the loan. The same principle applies to loan consolidation services or refinancing service providers. Refinancing a loan through a private lender can provide borrowers with additional options that are not available through government loan service providers. Always look at your available options before deciding which path to take.

Repayment options for the new consolidated loan may not be subjected to the same options that were made through the government service provider, so you need to make sure that this is something you really want to do. For example, if you are interested in the debt cancellation program available through the public service program, you might need to stay with the consolidation option that allows you to continue using this option. This is also true for the income-based repayment options, which may result in loan forgiveness at the end of the repayment period. These options are not available through private lenders.

Refinancing Options

Different student loans will carry different interest rates, which are determined by the lender. Private loans and federal loans can also be refinanced under a single consolidation program or private lender in some cases. Each service provider will have specific requirements, so you need to understand the terms of the agreement clearly before you make your decision. You should read the application for these loans closely in order to determine if this is the right solution for your lending needs.

Additional considerations also include the possibility of obtaining a better loan offer by having a co-signer for the refinanced loan; however, this must be done carefully. If you default on the loan, the burden of payment will be passed on to the co-signer. Whenever possible, improve your credit score prior to applying for one of these loan refinancing or consolidation programs.