Reduce Private Student Loans through Consolidation

When looking for debt consolidation student loans, you must consider all or as many of the moving  parts that make up the cost of the money borrowed. Just like any loans, there are three (3) general  areas where the lender can charge that will raise your costs. These areas are the fixed costs, the  interest rates, and penalties. Additionally, there is a fourth area, promotions, that you must heed  in order to reduce the total cost of consolidation for private student loans.FIXED COSTSYou've heard of these as application fees and/or orgination fees. These are generally explained as  covering the paper work to process your loan. Application fees are usually fixed so that a  consolidation for private student loans totaling $25,000 will have the same fee as a $100,000 loan.On the other hand, origination fees are a percentage of the total loan, typically 1%-3%. In the  mortgage industry, the origination fee, also called "points", depends on the interest rate. Lower  interest rate means higher origination fees and vice-versa. There's a term in the mortgage industry  that you can "buy down the interest rate by paying higher points". This is one way to lower the  monthly payments. Additionally, the origination fee is a major source of the broker's commission. The  student loan industry seems to have the same mechanics. So it is best to understand how they work.Because of the current competitive nature of the student loan services, many lenders are discounting  the fixed costs. Some are even slashing them off completely. So if you're in the market for  consolidation of private student loans, look first to the program with no origination and no  application fees. Make the lenders compete!INTEREST RATESAnother area of cost is the interest rate. Furthermore, this is where the lender gets most of its  income for the life of the loan. Again, because of the competitiveness of the student loan  consolidation services, many lenders give incentives that will lower the interest rate.The most common way to reduce a private student loan interest rate is through an automatic payment  plan. In this plan, the lender will deduct the monthly payments directly from your checking account  with your authorization. Since it's done electronically, it will be timely. And that leads to a  second opportunity to reduce the interest rate -- consecutive "no late" payments for a stated time  period. For example, some lenders will lower your interest rate if you make 48 consecutive monthly  payments without being late. Over the life of the loan, that could be significant. You must learn  these incentives and take advantage of them.Also, not necessarily a rate reduction plan, but could nevertheless reduce the total cost of the  student loan is the option of a fixed rate over that of a variable rate. A fixed rate private student  loan consolidation program gives you a predictable monthly cost. A variable rate adjusts according to  typical financial factors, such as the federal interest rates and economical conditions. In the early  years of the new millenia, interest rates have been its lowest just hovering around 4-7%. However,  from the 70's to most of the 80's, interest rates were in double digits. Opting for a student loan  consolidation with fixed rate can avoid the cyclical high's of the interest rate roller coaster. But  you must catch it at the lowest student loan consolidation rate at that time.PENALTIESJust like many mortgages written in the 90's and older, some student loans have pre-payment  penalties. These are money that you owe if you were to pay the loan ahead of schedule. They were  industry standard so that the lender does not lose money in the transaction. The penalty is typically  a percentage of the remaining balance. Imagine if you paid a 10-year loan in 6 years. There would be  a percentage of the 4 remaining years to pay over and above what you already paid.However, as the student loan consolidation services get more competitive, many lenders have been  giving up prepayment penalties to attract credit worthy borrowers. Hence, when speaking to a student  loan consolidation counselor, you must ask if you'll be assessed a pre-payment penalty because there  are many programs out there that do not have such penalty.PROMOTIONSLenders are competing for your business. Hence, they give incentives such as a student loan  consolidation credit that could lower the total cost of your loan. Typically, these are rebates where  the lender will write you a check once you finished paying off the loan. Another popular method is a  "no last month payment" where you don't owe the last month of your bill. Since these are promotions,  they are normally given in a limited window of time. But sometimes, it helps to ask your counselor if  the lender he's representing is offering any promotion.SUMMARYWhen times are tough economically, you need all what you can do to relieve the stresses. One way is  to take control of your finances, including your debts. For student loans, the opportunities are  there to save money. But you must know what they are. When looking to consolidate your private  student loans, be aware of the costs. If you have to compromise, understand the advantage you're  gaining and the benefit you'll be losing. And most of all shop for the right lender and ask the right  questions.A detailed mini-guide for student loan consolidation is available at CompareStudentLoans.googlepages.com.