Federal Consolidation vs. Private Consolidation - What's the Difference
Federal consolidation loans are a mechanism to refinance federal education loans only. Private consolidation loans are a way to refinance private education loans only. The main difference is that a federal consolidation loan comes with a fixed interest rate that follows a set federal formula, while private consolidation loans come with a market rate that may be fixed or variable.
If you consolidate both federal and private loans you should make sure to keep them separate - refinancing a federal loan with a private consolidation product will most likely result in a much higher interest charge than you'd pay if you kept it separate.
Private consolidation loans might be an attractive option for you. Here are some of the benefits you might find:
- Longer repayment term (up to 30 years in some cases)
- Lower monthly payment
- One monthly bill
- Potential release of cosigner from the original private loans
Consider this decision carefully, as a longer repayment term usually means a greater cost of borrowing (you pay interest for more years). Also, make sure to consider the interest rate on the private consolidation loan versus your existing private loans - rate structures can vary widely.
