The interest rate on your consolidation loans is the weighted average of the interest rates on the loans you have now, rounded up to the nearest 1/8 of a percent and capped at 8.25 percent. You can get help doing the math with an online calculator at the Federal Direct Consolidation Loans website.Click on “Borrower Services,” then “Online Calculator.” Interest rates are determined by the federal government and change each year on July 1, so check with a lender to get their take on possible rate fluctuation.
There are two exceptions: if you’ve since gone back to school and acquired new student loans, or if an outstanding loan was excluded from your original consolidation.
You may also have access to a new repayment schedule (like an income-contingent plan) that’s a little easier on your wallet.
If you don’t care about the extra cash and just want a consolidation for the simplicity of a single monthly payment, you can use any money you save to pay down the principal.
Private consolidation lenders, on the other hand, are not subject to those terms and may include variable rates and any number of fees.
What’s more, some benefits of a federal consolidation loan, such as interest subsidies on deferred loans, are not available on private loans.