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Student Loan Consolidation – How Does It Work?
By Vanessa McHooley
Student loans are a great source of financial aid for students
who need help paying for their education. Unfortunately,
students often leave college with burdensome debt. In addition,
they often have multiple loans from different lenders, meaning
they are writing more than one loan repayment check each month.
The solution to this problem is loan consolidation.
What is loan consolidation?
Loan consolidation means bundling all your student loans into a
single loan with one lender and one repayment plan. You can
think of loan consolidation as akin to refinancing a home
mortgage. When you consolidate your student loans, the balances
of your existing student loans are paid off, with the total
balance rolling over into one consolidated loan. The end result
is that you have only one student loan to pay on.
Both students and their parents can consolidate loans.
Should I consolidate my loans?
Loan consolidation offers many benefits:
- Locks in a fixed, usually lower, interest rate for the term
of your loan, potentially saving you thousands of dollars
(depending on the interest rates of your original loans)
- Lowers your monthly payment
- Combines your student loan payments into one monthly bill
In addition, consolidated loans have flexible repayment options
and no fees, charges, or prepayment penalties. There are also no
credit checks or co-signers required.
You should consider consolidating your loans if the
consolidation loan would have a lower interest rate than your
current loans, particularly if you are having trouble making
you monthly payments. However, if you are close to paying off
your existing loans, consolidation may not be worth it.
How will the interest rate for the consolidated loan be?
The interest rate for your consolidated loan is calculated by
averaging the interest rate of all the loans being consolidated
and then rounding up to the next one-eighth of one percent. The
maximum interest rate is 8.25 percent.
To figure your interest rate, visit loanconsolidation.ed.gov
for an online calculator that will do the math for you.
How much can I save?
How much you save by consolidating loans depends on what
interest rate you get and whether you choose to extend your
repayment plan. According to Sallie Mae, the leading provider
of student loans in the United States, consolidating student
loans can reduce monthly payments by up to 54 percent. However,
the only way to reduce your payment this much is to extend your
repayment plan. You typically have 10 years to repay student
loans, but, depending on the amount you're consolidating, you
can extend your repayment plan all the way up to 30 years.
Remember that if you choose to extend your repayment term, it
will take longer to pay off your overall debt and you'll pay
more in interest. There are no prepayment penalties, so you
can always choose to pay off the loan early.
Am I eligible to consolidate my loans?
In order to consolidate your loans, you must meet the following
criteria:
- You are in your six-month grace period following
graduation or you have started repaying your loans
- You have eligible loans totaling over $7,500
- You have more than one lender
- You have not already consolidated your student loans, or
since consolidation you have gone back to school and acquired
new student loans
The following types of loans can be consolidated:
- Direct Subsidized and Unsubsidized Loans
- Federal Subsidized and Unsubsidized Federal Stafford Loans
- Direct PLUS Loans and Federal PLUS Loans
- Direct Consolidation Loans and Federal Consolidation Loans
- Guaranteed Student Loans
- Federal Insured Student Loans
- Federal Supplemental Loans for Students
- Auxiliary Loans to Assist Students
- Federal Perkins Loans
- National Direct Student Loans
- National Defense Student Loans
- Health Education Assistance Loans
- Health Professions Student Loans
- Loans for Disadvantaged Students
- Nursing Student Loans
Where can I get a consolidation loan?
You can consolidate your loans through any bank or credit union
that participates in the Federal Family Education Loan Program,
or directly from the U.S. Department of Education. The loan
terms and conditions are generally the same, regardless of
where you consolidate. You may want to check first with the
lenders that hold your current loans.
If all your loans are with one lender, you must consolidate
with that lender.
If you decide to consolidate your student loans, remember that
you can only do so once unless you go back to school and take
out more loans. Therefore, you will want to make sure you get
the best deal the first time. The interest rate will be the
same from all lenders, but some lenders may offer future rate
discounts for prompt payment and a discount for having monthly
payments directly debited from your account.
Can my spouse and I consolidate our loans together?
You can consolidate your loans together, but it is not a good
idea for a couple reasons:
- Both of you will always be responsible to repay the loan,
even if you later separate or divorce
- If you need to defer payment on the loan, both of you will
have to meet the deferment criteria
When should I consolidate my loans?
You can consolidate your loans any time during your six-month
grace period or after you have started repaying your loans. If
you consolidate during your grace period, you may be able to
get a lower interest rate. However, since you will lose the
rest of the grace period, it is a good idea to wait until the
fifth month of the grace period before consolidating. The
consolidation process usually takes 30-45 days.
This article is distributed by NextStudent. At NextStudent, we
believe that getting an education is the best investment you
can make, and we're dedicated to helping you pursue your
education dreams by making college funding as easy as possible.
We invite you to learn more about how to get Student Loan
Consolidation at http://www.NextStudent.com .
About the Author: My goal is to help every student succeed -
education is one of the most important things a person can
have, so I have made it my personal mission to help every
student pay for their education. Aside from that, I am just a
pretty average girl from SD. http://www.nextstudent.com/
Source: http://www.isnare.com
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