How To Consolidate Student Loans?

How Student Loan Consolidation Works

Student Loan consolidation works like most consolidation programs. A lone lender takes on the various loans you have accumulated, like Stafford, Perkins, HEAL, NSL, and private loans. While the terms and repayment conditions vary among these many various lenders, a single loan consolidation company will settle all these loans and offer you a solitary, typically longer term, loan. What this implies practically, is that rather than needing to settle one loan in 3 years, another in 5, and another in 10, or having one loan’s interest rate be fixed and another variable, all your loans are compiled under a lone system. You can then negotiate with your loan consolidation lender, about the terms of the loan. Typically, students opt for a repayment plan of 10 to 30 years. Obviously, the longer the phrase of the loan, the lower your monthly payment will be.

Why Consolidate?

Consolidating your student loans provides you with the chance to lengthen your instalments, so as to take advantage of your future earning power. It is quite reasonable for students to believe that they will earn more as their careers progress, and by extending out the length of their repayments, they won’t have to lay money out for the most on their loan while their income is at its lowest point. Another advantage of student loan consolidation programs is that they take a good number of the confusion and problems out of student loan repayment. For recent graduates who have loans from a selection of public and private lenders, keeping up with the unique terms and conditions of every loan can regularly be a little a nuisance. For these reasons consolidation is an increasingly popular option. But that doesn’t imply that it is not without its expenses.

Why Not Consolidate?

Loan consolidation of any kind, is so interesting for lenders because they may charge relatively high “consolidation” fees. While student loan consolidation is regulated better than most forms, loan consolidation businesses still manage to add considerably to the principle of the loan (that you will ultimately have to pay back) in the kind of fees. One fashion to avoid this is to insist that you be offered the opportunity to pay for ALL consolidation fees upfront. By doing this, you can ensure that you will at any rate be made conscious of the quantity of charges being imposed upon you. Another problem with loan consolidation is that by extending the terms of your loans (say from 5 to 15 years) you dramatically increase the volume of interest you pay on your loans. Your interest payments on your loans accumulate over the course of time. This implies that the longer you take to pay your loan back, the more interest will accumulate. Many students fail to notice this, because they only focus on the interest rate, and not the total amount of concern that will be paid over the life of the loan.

Student loan consolidation is a valuable tool for students who would like to delay their payments until they earn more or for people who find the pain of maintaining most of their individual loans to be too troublesome. It is essential for recent graduates to consider, yet, that these benefits, despite what lenders may let you believe, do not come without negative tradeoffs. By being aware of both the positives and negatives of student loan consolidation, you can make more educated choices about the whether student loan consolidation is the proper solution for you.

With tuition expenses rising across the country, it has in a very short space of time become increasingly necessary for college students to include debt in an attempt to get their degree. But student loan repayments are frequently hard for students to make, especially considering that as soon as possible graduates incomes are typically considerably

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Refinancing education loans can be so simple and attractive that many borrowers tend to overlook some critical points about student loan refinancing.  Sometimes what you don’t know can save you a great deal of money, time, and frustration.  Below you’ll find a few little know facts that can save you big bucks when refinancing your education loans.  

Consolidation Loans have a fixed interest rate versus a variable interest rate

Most education loans have a variable interest rate which can mean significant changes in the monthly payments if interest rates increase as they did on July 1st, 2006.  With a fixed interest rate, the monthly payments and total payoff balance is a set amount.  Some education loans such as the Perkins Loan and the HPSL (Health Professionals Student Loan) are fixed rate loans.  Before consolidating it’s important to weigh the repayment benefits of rolling these kinds of loans into the consolidation.

Consolidation lenders vary significantly in terms of money-saving incentives

What separates one lender from another when it comes to consolidating education loans are the types of incentives each offers.  Lender incentives can greatly reduce monthly payments and the total amount owed over the lifetime of the loan.  Many lenders offer incentives for auto-debit payments, but rarely more than .25%.   Another standard incentive is a 1% reduction in interest rates after 36 months of on-time payments.  When shopping for a lender to consolidate your education loans, look for one that goes above and beyond these standards.  ScholarPoint for example, offers an auto-debit interest rate discount of .50% and a 1% reduction in interest after only 24 months, a full year earlier than the norm.  

Your loans must be current in order to consolidate education loans

If you’re behind on your loan payments, you’ll need to get caught up before refinancing.  Once you refinance, you’ll most likely enjoy much lower monthly payments to ease your budget once you are caught up.  

Private education loans and federal education loans cannot be combined when refinancing

While federal student loans are funds lent by the government, private student
oans are those offered by independent lenders and tend to have a higher rate of interest.  Those who have both types of education loans will need to secure 2 different consolidation loans.  It’s best to consolidate federal education loans first and then start the process of consolidating your private education loans.  You can however, consolidate federal subsidized and unsubsidized loans together.  They do need to be tracked separately, but a quality lender will take care of this for you.

Your deferment and forbearance limits start over when you consolidate

One of the most important benefits of education loans is that they allow students to put their loans in to deferment or forbearance status during difficult times encountered while building their careers.  When you refinance, you are essentially getting a whole new loan, meaning that your deferment and forbearance limits are reset.  

Consolidating during the post graduation grace period allows you to lock in the lowest rate

Interest rates during the grace period (6 months after graduation) are .60% lower than after the grace period when loans move into repayment status.  Consolidating before the grace period is over helps to lock in this much lower interest rate.  It’s best to start the consolidation process soon after graduation to ensure that there is adequate processing time.  You can specify that your new consolidated loan begin at the end of your grace period so that you may enjoy both benefits.

Borrowers can no longer reconsolidate student loans

For many years, borrowers have had the opportunity to reconsolidate their education loans if they were unhappy with their lender or found a better loan offer elsewhere.  As part of the Federal government’s July 1st 2006 student loan changes, borrowers now face major restrictions when it comes to finding a new lender for already consolidated loans.  Unless you plan to take out new loans that would allow you to reconsolidate, it pays to shop around and find a lender you are going to be happy with because you only have one opportunity to consolidate.

Refinancing education loans is one of the easiest ways to lower monthly bills and make paying back your college education affordable.  Keeping these little known facts in mind can save you a great deal of money and make consolidating your education loans a smooth and simple process.

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