Posts Tagged ‘federal student loan consolidation’

The Benefits Of A Federal Student Loan Consolidation Program


One of the most essential and high-priced – things you will do in your life is earning a college degree. If you are able to attend college without having to take out any student loans, you are one of the lucky few. Most people need to borrow at least some of the money they require for tuition, books, and living expenses. And upon graduation, you’re faced with the challenge of repaying all of those loans after the grace period ends, regardless of whether you are employed or not. That may be a difficult dose of reality whenever you recognize that not paying your loan payments on time, or not paying them at all can have grave consequences where your credit rating is concerned. Which is why it’s smart to consider a federal student loan consolidation program.

Federal Loan consolidation entails resorting to a single loan to be able to pay off many other people. This is carried out for efficiency, as it is possible to generally get a lower interest rate, and you only have one monthly loan payment to keep track of. It’s also excellent for your credit history. Typically, student loans are guaranteed by the United States government. With a federal student loan consolidation program, currently held loans are purchased and closed either by a loan consolidation corporation or by the U.S. government. Who handles the loans depends upon what kind of federal loans the borrower has.

One of the benefits of the Federal student loan consolidation programs is that the interest rates are quite reasonable. They are lower than your average bank loan. They’re calculated based on the current year’s student loan interest rate, and in turn calculated based on the 91-day Treasury bill (a government bond utilized as a debt-financing vehicle of the U.S. Federal government) rate at the previous auction (held each year in may) of the year. The interest of student loans are variable, but can not go over the maximum of 8.25% for Stafford Loans and 9% for PLUS loans (Federal parent loans).

It should be mentioned that Student loan consolidation programs are obtainable to former students who have extra than a minimum amount of federal student loan debt (usually additional than about $10,000). Parents with more than a minimum amount in PLUS loan debt are also eligible to consolidate.

If an individual chooses to consolidate his or her federal student loans, the loans might be consolidated via a private lender, plus the borrower can only consolidate once more via the U.S. Department of Education. Upon consolidation, the loan is charged a fixed interest rate that does not change even if the loan is reconsolidated. And, with a federal student loan consolidation program, there are no fees applied or closing costs to be paid. This differs from private lender debt consolidation.

If it is possible to take advantage of a federal student loan consolidation program, it might be beneficial to your credit history, by helping it stay clean. It is easier to maintain track of and remit one monthly loan payment than to keep track of two or far more student loan debts, specially when you move regularly. And losing track of a federal loan is never a great thought.

Loan consolidation is particularly great if you are having trouble making all of your scheduled loan payments on time. Defaulting on your student loans is a very unfortunate scenario to be in, and can lead to having property and possessions taken from you in order to pay the debt. You are able to also take into account requesting loan forbearance from your lender, which permits you to take a break from your payments, or make interest-only payments. Nevertheless, the longer you wait to pay your debt, the longer it’ll be hanging over your head. With consolidation, repayment is extended over a longer period of time which, additionally to the single lower interest rate you will have on your loan, they payment are lower and additional manageable within your budget.

In the event that you are interested in a student loan consolidation program, it is possible to consult the U.S. Department of Education, or one of the lenders with whom you currently have a student loan for details. During the application process, you’ll be able to discover exactly which of your loans qualify for consolidation (hopefully they all do!), and be on your method to far more manageable student loan payments.

Types Of Federal Student Loan Consolidaion

If you are an American student or one studying in a U.S. citizen school, then you are entitled for federal student loan consolidation from the U.S government.

Federal student loan consolidation plans are applicable for all students whether you are still in college or a recent graduate or already into your new career.

If you are successful in your student loan consolidation application, it will help you to reduce the student loan payment amount every month and/or allows you more time to compensate your loans as a student.

If you currently have several student loans, it is simpler if you use federal student loan consolidation to consolidate them into one loan payment thus making it simpler to manage.

The Four Types Of Federal Student Loan Consolidation

The U.S government in a bid to attract more students to require their student consolidation loans have come up with four plans to suit the different needs of students.


1) Standard Student Loan Consolidation

The most student loan period is 10 years and the payment amount every month is fixed. This sort of plan is suitable for students who are able to afford to pay a fixed amount each month. The monthly interest wouldn’t be a big aspect in huge student consolidation loans

2) Extended Payment Plan

This sort of plan is identical to standard student loan consolidation other than it has a longer repayment period of between 15 to 30 years. The repayment period is subject to the student loan amount.

3) Graduated Payment Plan

This sort of plan is worthwhile for students still schooling and can only repay the student loan when they have a job after they graduated. The payment period is between 15 to 30 years. The payment amount each month usually starts low and increase steadily every 2 years. The intent is the as the student has worked for a longer time of time, their salary will increase accordingly and therefore able to pay a larger repayment student loan.

4) Income Contingent Payment Plan

This kind of plan is complex and is founded on the student’s income over a time of years. It is also dependent on the family’s annual gross income, other loan amounts owed, other assets, mortgages etc.

Most student usually choose graduated payment plan or the extended payment plan for their federal student loan consolidation.

Consolidating Your Federal Student Loan

For the average student who has graduated from college, it’s a difficult feat trying to make the payments on all of the federal student loans. Certainly, they were necessary to secure a good education and to obtain the education necessary to secure placement in the job of your dreams.

Now that you have reached that goal, you wonder how you are going to pay off all of those loans as well as meet your other financial obligations.

In recent months, a number of financial institutions have begun to see that many students are having a difficult time with meeting all of their financial obligations with so much in student loan debt.

In order to assist new graduates with their student loans, programs have been developed to allow graduates or soon-to-be- graduates to consolidate their student loans at an attractive interest rate. Some of the rates being offered are as low as 1.75% and some up to approximately 5.5% depending on the lending institution, the term of the loan, and the amount of the loan.

The typical federal loan consolidation saves a student 51% in payments per month, or approximately $150 monthly. In some cases, the savings may be even more, depending on the size of the loan and the original payment schedule.

A Federal student loan consolidation can be financed for either ten or twenty years. Many of these programs do not require either a credit check or income verification. These loans are intended to allow the new graduate to work their way into the working world and into their designated career without having to worry about how they are going to make the payments on the numerous loans that were required in order to get their degree.

These students are typically those whose parents were unable to send them to college and who did not quality for a full scholarship. Therefore, they had no choice on how to finance their education, but now that they are graduating or have graduated, reality has presented itself, and they have thousands of dollars in student loans that they are required to pay back.

With the employment situation being such as it is many of these students will not be able to obtain a job making the money they had originally anticipated if they are even fortunate enough to find a job in their field of study.

Being able to lower the payments on those loans will relieve some of the stress and allow the new graduate to concentrate on top priority items such as obtaining employment if he hasn’t already done so and being able to pay off the high interest credit cards with the money that will be saved by consolidating the student loans.

The new graduate who already has a family will be able to concentrate on spending time with the family instead of working harder and longer hours. Additionally, if he and his family have been living with relatives, the savings on these student loans may allow them the opportunity to move out on their own and being financially independent.

Consolidating federal student loans is a godsend for many of the students who would not have even been able to attend college without loans in the first place.


Federal Loan Consolidation-Do Not Get In Debt Over Your Head



With the high cost of a college education today, it is no wonder students are relying more on loans than ever before to help them make ends meet, according to the College Board. The good news is that interest rates are currently at record lows of less than 3 percent on the Stafford.

To make smart decisions about borrowing, you still need to plan ahead now and understand your options when it comes time for repayment. Here are some simple guidelines that apply to the major federal loan programs–the Perkins, the Stafford, the PLUS–as well as independent bank loans.


Keep in mind that every dollar you borrow must be repaid, with interest, which can really add up over a 10-year (or longer) repayment term.

It’s easy to think a $200-a-month payment is not a big deal, but those payments can take a big chunk out of your monthly income, and you’re going to need to pay your bills.

To get some idea of how much is too much, you need to estimate how much you’ll be able to pay back once you graduate. That involves estimating your future salary and expenses.

The best way to do this is to use a budgeting calculator available on the Web site of a major lender, such as Bank of America (www.bankof Calculators let you estimate monthly expenses–rent, utilities, food, clothes, car payments, insurance, etc. Then you compare those expenses to your estimated salary. Some calculators provide salary info, or you can find Bureau of Labor Statistics salary averages at By subtracting your estimated expenses from your estimated salary, you can predict how much you can afford in monthly loan payments.


If you do wind up borrowing more than you can afford, you run the risk of defaulting, or failing to pay back your loan according to agreed-upon terms. These terms are specified in a promissory note, a legal document that binds you to make regular payments.

Default usually results after you miss payments for 180 days. Many defaulted loans are sent to collection agencies that may charge costly late fees and take money from your wages. Worst of all, a defaulted loan can haunt you later because it will be recorded as part of your credit history for seven years. Lenders refer to your credit history when you apply for any major loan.

Credit bureaus keep close tabs on delinquencies, says Tom Lustig, vice president and director of marketing at PNC Bank. If lenders see you have a defaulted loan, they may deny you a mortgage, car loan, credit card, or personal loan, or charge a higher interest rate.

Most lenders provide students with charts to help track repayments. Keep in mind: If you can’t make a monthly installment, immediately contact your lender or servicer (the company that owns your loan) to discuss the problem. Plus paying on time has further advantages–many lenders will give about a 1 percent discount to students who make


Knowing the terms of your loan–the conditions by which you have borrowed and are obligated to repay the money–can help you avoid default. But first you should start by understanding some basic loan terms:

Grace period. A period of time–usually lasting six months after you leave college–when many student loans don’t require repayment. After the grace period, a deferment or forbearance can temporarily suspend repayment.

Deferment. A period when a borrower who meets certain criteria may temporarily stop loan payments. Depending on your type of loan, the federal government may pay the interest on it during your deferment period. New borrowers might be eligible for a deferment if they are still enrolled in school half-time or full-time; unemployed; studying in an approved graduate fellowship or rehabilitation program for the disabled; or experiencing economic hardship.

Forbearance. The temporary suspension of repayment in cases of hardship. Anyone with student loans may claim forbearance for six months at a time, for up to a total of three years, but interest still accrues.

Loan consolidation. Combining several loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. Consolidation can lower the monthly payments and extend the repayment period to a max of 30 years, but you’ll pay more interest.

Even if you have one loan, it is a good idea to use consolidation to lock in a low rate. It is a fact that lenders offer incentives and interest rate reduction plans, so it pays to shop around.

All in all, loans can be a viable option for paying for college, as long as you borrow within your means and keep up with repayment.

Does Federal Loan Consolidation Help Credit Score?

The answer is yes! The fact is, student loan consolidation does more than reduce your long-term debt; it also helps improve your credit score during the course of the loan. In return, this could help the recent graduate get a better home, car, or better rates on personal loans or credit cards after graduation. Federal student loan consolidation improves your credit score by taking into account the methods that are used by the reporting agencies. For instance, the more open loan accounts you have, the more reports there will be to the credit bureau. And the more open accounts that you have, the lower your credit score will be.

During the course of an academic career, a student will take out as many as 8 loans to help pay for college; one for each semester. Federal loan consolidation helps take these 8 accounts and reduce them into one. Therefore, instead of separate accounts with their own interest and terms of payment, you have only one to worry about. That also means less reporting to the creditors, which in return produces a better credit score. Federal loan consolidation also creates lower payments in the terms of your student loans. When these agencies determine your credit score, they often look at your minimum monthly payments to determine your score. Chances are that with student loan consolidation, you will have a monthly payment smaller than the lump sum of all the old monthly student payments. If so, you are indeed helping your credit score in the positive way.

Finally, when federal student loan consolidation helps your credit to debt ratio. When the credit bureau looks at your debt to credit ratio, they will see less in a consolidated loan. When you have more credit available to you, but less used, then you will almost always have a higher credit score. Thus, these three main points should be reason enough for any student to consolidate their federal loans into one monthly payment. It not only takes the strain off of paying bills, but it also takes the strain off of bad credit.





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