Not many students know how to apply for a fixed rate loan and its pros and cons. Fixed rate student loans have several advantages and disadvantages. As the name implies, one of the benefits is that borrowers do not have to worry about interest rate fluctuations. But before you apply for a loan, you must know what you are going to do.
A fixed-rate student loan can be realized by combining several student loans into one main loan. By merging your education loans, you can repay all the funds you borrowed to a lender at a fixed rate. This is really easy because you don't have to go through the hassle of repaying the loan to each lender. However, the fixed interest rate given by the merger may be counterproductive because you may end up with a slightly higher interest rate. This is because the average interest rate of the combined loan is rounded to the nearest 1/8 [0.125, 0.25, 0.375, 0.5, etc.]. The minimum interest rate for a consolidated loan is 4.70%, while the highest interest rate for a Stafford loan is 8.25% and the interest rate for a PLUS loan is 9%.
With the integration of all educational aids, you will end up with a lot of debt and a longer repayment period. In general, the repayment period for fixed-rate student loans is 10 to 30 years. The length of the repayment period depends on the amount of the loan. If you can afford it, I suggest you stick to the 10-year repayment plan. A longer repayment period does mean a lower monthly payment [in exceptional cases, the borrower can save up to 50% per month]. However, one thing to keep in mind is that the longer the term, the higher the interest rate.
Another disadvantage of loan consolidation is that you cannot combine federal and private education loans. To combine these two types of loans, you must separate them. Federal students' financial aids are easier to merge because many loans, such as Perkins, PLUS, Stafford, HEAL, SLS, NSL, and other federal educational aids can be combined. On the other hand, you can combine private student loans by finding the right lender, such as NextStudent, Student Loan Network or Chase.
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