Federal student loan consolidation rates are experiencing constant surge in popularity since their inception in the U.S. education system.
If you are wondering on how the consolidation process takes place, then you may read below.
Higher education is not affordable to all the students. Further, some of them resort to private loans, which eventually cost them a fortune. Moreover, private loan lenders do not give special benefits such as low interest rates, as federal education fund providers give. However, not all of funds achieved from federal department suffice to pay all academic expenses that a student incurs during his/her period of education. To mitigate this problem, one has to buy both types of loans, which are federal as well as private.
However, buying two different loan schemes may call for two different bills to pay for. In long run, you might end up paying more in the form of interest rate. However, to end this misery, you may choose federal student loans at consolidated rates. Using consolidated loan rate benefit, a student pays his/her loans at low interests making both long-term and short-term loan options easier to access.
In case you are worrying on how does a consolidated loan is calculated, then it is much simpler than you thought it to be. However, the dogma regarding why two consolidated loan rates may never match remains as consolidated rate are determined as a weighted-average over present rates, which happens to depend on time. For instance, if an individual happens to buy five loans with two-fifth being charged at 7% and other three-fifth at 5%, then the consolidated rate of interest is merely a summation of multiplication of weight-average with their individual rates.
That is, (2/5)*7% + (3/5)*5% = 5.8%, which is the new rate or consolidated rate.
Bottom Line: Consolidated rates are much cheaper than individual rates of the loans.