Many students attending college obtain student loans to pay for all of their expenses leaving tons of debt to pay off even after the student graduates. This is why many students choose to participate in programs that provide options for consolidating student loans.
Student loans are usually very easy to obtain and for the most part can be found at many different competitive interest rates. However, the most difficult part for a student lies after graduation when they are left to pay off the remaining debts.
A lot of the times, students find it very hard to even make their monthly payments for their student loans. For the most part students have a hard time due to the inability to find a good pay job right after graduation and primarily students don’t calculate the interest rates that they will acquire.
It can be a challenging task for a student to not only make a monthly student loan payment as well as taking care of other loans or costs such as housing costs or auto loans. As we all know this can become quite the debt and does nothing but add up as a student gets behind putting them in a rough financial situation.
For many students obtaining a loan consolidation is the only way a student may be able to get their finances as well as living situations back in order. Often times, consolidating student loans is the sole solution for a student and their financial dilemmas.
By acquiring a student loan consolidation the student can also evade a bad credit record due to the incapacity of making their monthly debt payment on time. By using a loan consolidation program your monthly payments can be considerably reduced and the student is left with more money at the end of the month to cover other living costs.
Loan consolidation programs can also give credit counseling advice, which is a big plus for a student who is trying to keep their credit in tip top shape and not left in shambles.
When a student takes out a loan consolidation program this takes all of the remaining debt that the student has and pays the loan or loans off in full. The student now no longer owes any of their current lenders. Now the student is only left owing money to the consolidation company and at a better interest rate.
A consolidated loan can be paid off anywhere between 5-30 years, by doing this the students monthly payment will be greatly reduced, allowing the student to make monthly payments easily and more promptly.
There are many loan consolidating programs available and are very easy to come by. The only major requirement for most loan consolidating companies is that the student has a stable and solid paying job.
The best time to consolidate your student loans is during the student’s grace period. The grace period in your student loans usually occur after the student has finished school but not yet in the repayment period.
The grace period usually begins anywhere between 3-6 months after the students graduation. If the student chooses to consolidate their student loan or loans during this grace period, the student usually can qualify for a lower interest rate from the loan consolidation lender.
An interest rate is set by the federal government on the consolidation of federal school loans, so lenders are now legally bound and can’t charge the student a higher interest rate for any reason, due to federal law.
Interest rates on consolidating student loans that are backed by the federal government are fixed for the life of the student’s loan and can’t be higher than 8.25%. This however doesn’t mean that the lender can’t charge you a lesser interest rate, so you will still want to shop around for the best rate possible when consolidating your loans.
If the student has both private and federal student loans, you will not want the lender to put them together into a consolidation loan. Why? Simply because the student will lose any federal benefits that are a part of the students federal loans.
For example, the capital on interest charged is at 8.25% for federal student loans, therefore you would lose this capital if you consolidate both private and federal student loans into the same loan. However the student does have the option of a deferment and forbearance that you can use with federal student loans if the student happens to lose their job or if they become disabled and unable to work. These are very important benefits that the student would definitely not want to lose.
Deferment is basically when the government allows the student to postpone their payment of the principal on their loan for a period of time. The student may or may not need to need to repay the interest during deferment, depending on the type of loan the student has.
Forbearance is the allowance of stopping payments for a period of time. However, you will still have to pay the interest payments on the loan. There may be ways for the student to add the interest payments onto the back of their loan with both deferments of a payment and forbearance. This way the student is not left paying anything during these periods.
There is protection for students taking out loans for education expenses, this being called The Higher Education Act. This act specifies that that the federal student loan consolidations have to have fixed interest rates, no credit checks for the borrower, no processing fees or loan fees of any kind, a lower interest rate if the loan is consolidated during the grace period, and no repayment penalties if the borrower pays off the loan early.
For a lot of students the question is whether it makes sense to consolidate your loans at all. If the student is more than half way through repayment of their existing loans and the student is able to make monthly payments, then loan consolidation would not make sense.
However, if you do believe that loan consolidation is the right path for you, you will want to start by keeping track of where you are now. The student will want to write down all of their student loan balances as well as interest rates. This is a very important because the interest rate for your new federal loan will now have a fixed rate and it can be calculated by taking the weighted average of the student’s interest rates of their existing loans.
Since the student’s interest rate will solely be determined by your existing loans, it is very wise for the student to the right repayment schedule for the student. The rule of thumb on this decision is that the student should choose the shortest repayment period but also giving the student manageable monthly payments toward the loan consolidation.
If the student has already consolidated all of their student loans, then you might not be aware that the student can refinance these loans when and if the interest rates decrease. Private student loans are easily refinanced after they have been consolidated. Federal loans can only be refinanced when adding more funds to the student’s federal loan.
Consolidating Student Loans – Few Advantages
There are a few advantages that can help you along the way to deciding if refinancing a consolidation loan is right for you. One advantage to refinancing your loan consolidation is the student decreases their monthly repayment up to 53% and can enhance your credit score. Another advantage in refinancing your consolidated loan is your payment plan and period is tailored to your current financial requirements and early applicants can secure a reduced rate for the duration of the loan. Lastly, the application process is simple and there are no application charges and of course no credit checks in connection with your application.
Consolidating your student loans is something that every college graduate with debt should look at and research. There are many advantages to consolidating your student loans and can help the student in the long run to successfully pay off their loans as well as live comfortable with manageable monthly payments.