Interest rates of consolidation loan is a weighted average of individual interest rates of the loans you want to consolidate. Then is rounded up to 1/8 of one percent and also cannot exceed 8.25%.
Let's look at an example below:
Unsubsidized Stafford student loan consolidation needs. The loan was taken after 1 July 2006. This means that the loan has a fixed interest rate of 6.8%.
When the student goes to consolidate this loan, the new interest rate will be the 6th and 7th/8th of a percent, that will be 6875%. This is just a consolidation loan.
Now suppose that the student has more than one loan. The interest rate again after the consolidation will be somewhere in between. We say that the student loan $ 5,000 loan that has the Perkings interest rate of 5.0% and $ 15,000 of unsubsidized Stafford loans, the interest rate of 6.8%. The new interest rate is the weighted average that is:
($ 8000 x 5,0%) + ($ 15,000 x 6.8%)
—————————————————————————- = 6.17%
$ 8,000 + $ 15,000
6.17% and then it will be rounded up to 1/8th of a percentage point. This gives us 6.21%. This now becomes the interest rate of the consolidated loan.
However, note that the new interest rate will not change substantially the underlying cost of the loans.
When you consolidate loans with different interest rates, the rate of consolidation will always be between interest rates of loans. You should however think that this will save a large amount of money. The rate of consolidation can be less than your highest interest rate but also top of some of your other loan rates of interest. Furthermore, the total amount of interest that you pay for your consolidation loan will be about the same as the original loans.
For more info about studen loan consolidations, just click link below:
STUDENT CONSOLIDATION LOANS
