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Private
student loan consolidation
Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.
Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan..
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The risk to the lender is reduced so the interest rate offered is lower.
Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.
Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral.
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Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest. In practice, many people are in credit card debt because they spend more than their income. If that habit continues, the consolidation will not benefit them much because they will simply increase their credit card balances again.
Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan
Sometimes these fees are near the state maximum for mortgage fees. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments. If the client does not refinance they may lose their house, so they are willing to pay any allowable fee to complete the debt consolidation. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them. This practice is known as predatory lending. Certainly many, if not most, debt consolidation transactions do not involve predatory lending. If you graduated in 2006, or if you will be graduating within the next few months, we would like to congratulate you for obtaining your law school degree. We would also like to provide you with some very important information regarding federal student loan consolidation.
Collegiate Funding Services (CFS)
$7,500 minimum. $125,000 maximum. Up to 30-year
term. No prepayment penalty. Variable rate loan.
Best variable rate is Prime + 1%. Guarantee fee
of 1% to 3% (added to principal).
EduCap Inc. Loan to Learn Private Consolidation
Loan
$10,000 minimum. $250,000 maximum. 20-year term
for loans less than $40,000. Up to 25-year loan
term for higher amounts. Variable rate loan.
Interest rates range from Prime + 0.0% to Prime
+ 4%, but may be higher based on changes in the
Margin Adjustment Index. Fees of 0% to 4%.
Education Finance Partners
$7,500 minimum. Up to 30-year term. No
prepayment penalty. 0.25% interest rate
reduction for making monthly payments via EFT.
Choice of variable or fixed interest rate. Best
variable rate is 3-month LIBOR + 1.80%. Fixed
rate is 2.01% higher. No fees.
Key Education Consolidation Loan
$7,500 mimimum. $75,000 maximum for non-Key
debt; no maximum for Key education debt. Choice
of 10, 15 or 30 year repayment term. Variable
rate loan, with rates pegged to repayment term:
3-month LIBOR + 3.75% (10 years), 3-month LIBOR
+ 4.25% (15 years), and 3-month LIBOR + 5.00%
(30 years). No prepayment penalty. No fees.
Nelnet Private Consolidation Loan
$5,000 minimum. $100,000 maximum for non-Nelnet
debt; no maximum for Nelnet education debt.
Variable interest rate. Best variable rate of
Prime + 4.75%. 0.5% interest rate reduction
after making 48 initial on-time monthly
payments. Co-signer release option after 48
initial on-time monthly payments.
NextStudent Private Consolidation Loan
$7,500 minimum. $125,000 maximum. Up to 30-year
term. No prepayment penalties. Variable rate
loan. Best rate of 3-month LIBOR + 4.45% to
3-month LIBOR + 4.95%. Origination fees of 0% to
7%.
Sallie Mae Private Consolidation Loan
$5,000 minimum. $275,000 maximum. Up to 30-year
term. No prepayment penalties. Variable rate
loan. Interest rates vary from Prime + 0.0% to
Prime + 6.0%, depending on credit history.
Origination fee of 2% to 5%. Co-signer release
after 24 on-time payments.
Student Loan Network
$10,000 minimum. $250,000 maximum. 20-year term
for loans less than $40,000. Up to 25-year loan
term for higher amounts. Variable rate loan.
Interest rates range from Prime + 0.0% to Prime
+ 9.90%, but may be higher based on changes in
the Margin Adjustment Index. Origination fee of
0% to 10% (added to principal).
SunTrust eCon Loan
$5,000 minimum. $100,000 maximum. No prepayment
penalties. Variable rate loan. Interest rates
range from Prime + 0.25% to Prime + 7.0%. No
origination fees. 0.25% interest rate reduction
for making monthly payments via EFT. 0.5%
interest rate reduction after making 48 initial
on-time monthly payments. Co-signer release
option after 24 initial on-time monthly
payments.
Wells Fargo Private Consolidation Loan
$5,000 minimum. $100,000 maximum. Up to 15-year
term. Variable rate loan. Interest ranges from
Prime + 0.0% to Prime + 6.75%. No origination
fees. Up to 0.50% interest rate reduction for
making monthly payments by EFT. 0.5% interest
rate reduction after making 48 initial on-time
monthly payments. Co-signer release option after
24 initial on-time monthly payments.
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