What is Student Loan Consolidation?

Student Loan Consolidation is basically the process of taking all your current student loans and merging them into a single loan with one lender. All you various loan payments are consolidated into a single payment. Student loan consolidation is a form of debt consolidation and is similar in practice to say refinancing a home mortgage loan.

Why Do I need Student Loan Consolidation?

A large majority of students use student loans to fund their education which otherwise would not have been possible due to financial circumstances. Student loans provide them with the funds to attain education that can get them into a well paying job. Repayments on your student loans begin once you leave college and start work. Until then most student loans are in deferment. Unfortunately when you start working, many students find it difficult to meet the required monthly payments for the many student loans debt that they took upon themselves. This is where consolidation comes in handy.

What are the benefits of student loan consolidation?

Loan consolidation has many advantages and benefits. Each student’s situation is different but generally speaking loan consolidation should help you to

• Move to a lower rate of interest for the term of your loan.
• Reduce your monthly payments
• Combine all your payments into a single payment

There are many more reasons. Read about the various reasons in this article about the advantages of student loan consolidation.

When Should I go for a student loan consolidation?

Again broadly speaking, student loan consolidation makes sense if the interest rate on your consolidated student loan is lower than the rate of interest on your current loans. Additionally if you find that managing several loans is becoming a hassle and would like to consolidate into a more manageable single payment. A third reason could be that you are planning on going back to school and would like to consolidate and defer your loans till the time you are done with school. Each reason is situation specific, you have to make sure your reasons are sound.

How is the interest rate calculated while consolidating my student loan?

Interest rate on a consolidated student loan is calculated by averaging the interest rate for all your current loans. This is then rounded off to the next 1/8th of 1%. That said, the maximum interest rate that can be applied on a consolidated student loan is 8.25%. Use this calculator to figure out how much you will save

Can I save a lot if I consolidate my loans?

This is again very situational and depends from individual to individual. The main factor is the current interest rates on your student loans. If you have a high interest rate then yes, you will save money. Keep in mind though simply lowering interest rates in not enough. You can lower interest rates but if your loan term is increased, though you will be paying lower monthly payments, you will end up paying much more since you now will be paying for a longer period of time.

Am I eligible for Student Loan consolidation?

To be eligible for loan consolidation, you have to meet the following requirement.

• You have currently started repayment on your student loans or you are in the 6 month deferment period after graduation
• Your current student loans total more than $7500
• You have student loans with more than one lender
• You have not consolidated your student loans. If you have consolidated your student loans already, you only become eligible to further consolidation if you have gone back to school and taken on more debt.

What kinds of student loans can be consolidated

The following types of loans can be consolidated:

• Direct Subsidized loans
• Direct Unsubsidized loans
• Federal Subsidized loans (Stafford Loans)
• Federal Unsubsidized loans
• PLUS loans
• Federal and private consolidation loans
• Health education assistance loans
• Health professions student loans
• Disadvantaged student loans
• Nursing student loans
• Defense student loans
• Direct student loans
• Federal insured student loans
• Auxiliary student loans

Where can I consolidate my loan?

You can consolidate your student loans directly with the US Department of Education or with private lenders such as banks or credit unions that are part of the Federal family education loan program.

When should I consolidate my student loans?

You can consolidate your student loans once you’ve started making monthly payments on your loans or during the 6 month grace period. The best time to consolidate would be during the 6 month grace period since you might haggle a better rate of interest. Do keep in mind however that you will lose any remaining time in your grace period if you go in for consolidation. One way around this is to wait till your 6 month grace period is almost over and then consolidate your student loan.

We get several questions around studying in Canada and particularly around the financial aid system in Canada and the availability of scholarships and grants for students studying in Canada.  Generally most questions center around showing proof of funds to support oneself while studying in Canada, what are the options to work while studying in Canada, how to cover tuition costs and living costs while studying and working part time in Canada and finally the chances, procedure to apply for a student loan to cover tuition and other student expenses while in Canada and what are the immigration requirements as far as funding, tuition, student loans etc.

Studying in Canada is increasingly becoming popular with a large number of students applying to universities in Canada to do their graduation or post graduation courses. What is attractive is the relative cost of education when compared to the Unites States, the quality of education and the value and recognition that a degree from a Candaian University holds. Apart from these reasons you also have financial help and scholarships that are available to students considering studying in Canada. Below are some of the scholarship, financial aid options you should look into to help you out financially during your courses.

Financial help in Canada is available. As with everything it requires you to do your research and plan well in advance to apply for financial aid.

How does consolidating student loans impact your credit score and credit report in general. Is it wise to consolidate? What are the drawbacks in terms of your credit worthiness?

Answering this question is a complex one. Without all the facts the advice here should be only considered as a starting point. Generally speaking whenever you talk about debt consolidation, it is almost always has a negative repercussion on your credit score simply especially if the current lenders are consolidated with less than the original loan amount. In the long term however, you should see a positive effect on your credit report since you will hopefully have a smaller debt to income ratio, it is easier to make payments on time and you will have far less of number of credit lines on your credit report.

Exploring student loan consolidation is wise if you are having trouble making payments but keep in mind that if you do consolidate you might lose certain benefits such as loan deferment and loan forgiveness in certain cases such as the Perkins Loan. You have to weigh all the pros and cons before you decide on consolidation. As far as your credit report is concerned, without all the facts in front of me, I would say yes there will be some negative effects in the short term but if a student loan consolidation is going to keep you afloat then your long term credit report will end up looking good.

Below are some of the typical questions we get around this subject (all personal information removed)

• “Can I consolidate my student loan without affecting my credit?”
• “How is debt consolidation going to affect my credit score?”
• “Is there a way to consolidate my student debt without impacting my credit score?”
• “What is the best way to consolidate my past loans so that I can have a clean credit report and avoid lowering my credit score?”

Typically your college hands over a check for any leftover funds from your student loan or federal aid or grants once all the educational expenses from the college or university has been met. Now the funds handed over to the student with the following expectations. Since the refund is from your government or private student loan, the expectation is that you will use the remainder of the loan i.e your refund money on things that support your education. These could be school supplies, boarding and even commute. Yes, this does mean that you can put your refund money to purchase a car to help in your commute to school.

It is important that you maintain strict records on how you spent your loan refund money. This will come in handy if and when you have to show for whatever reason where the balance of your student loan funds went. What this means is that you cannot use your left over funds for entertainment and other non educational reasons. Spend your left over bonanza wisely.

This is a very common question and below are some of the related queries we get on this subject. As always any personal information is removed.

• “How can I spend my refund loan amount?”
• “I might be getting back close to $2000, I would love to use that money to pay my rent and other bills that have piled up. Is this allowed?”
• “What should I spend my loan refund money on? I already have all my books & other school supplies. I would like to buy a used car for transportation to & from school. Can I do this? I don’t think I have to explain to the Financial Aid office how I spent the money. What else should I do with any leftover money?”

Can I get another loan? Am I wasting my time applying for a new Student Loan when I am already in arrears on my previous loan? Can I apply for a grant? I would love to return to school but am not sure if my previous loan status and back taxes status are going to be a roadblock in taking my career forward.

While it is great that you are refocusing your efforts to complete your education, unfortunately you cannot be approved for another student loan if you already are in default on your previous student loan. Work out a loan consolidation program or explore options to get part of the previous loan waived. That way once you are not in a limbo state as far as your previous loan is concerned you should be able to move forward with a new loan application. Good luck

I have 0,000 in private student loans from two lenders. The interest rate is over 10%. Is there a way to get another loan to pay this off at a lower interest rate? What kind of debt consolidation program should I consult? Most student loan companies only deal with Federal loans it seems. I keep seeing ads for mortgage loans with low monthly payments– is there something similar I could get for a personal loan?

 

What is Student Loan Consolidation?

Student loan consolidation is a process where you take your existing student loans and combine them into one single loan, a master loan if you want to call it and in the process significantly reducing your monthly loan payments. There are wide variations on how much you can save by consolidating your loans and is completely dependent on each individual’s situation, students loans, rate of interest of the loans, variable or fixed student loans and so on.

Student Loan Consolidation Types

There are basically two types of student loan consolidation programs. One offered by the government or Federal Student Loan Consolidations program and the other offered by private financial institutions such as banks called as Private Student Loan Consolidation.

Why Consolidate My Student Loans?

Student loan consolidation offers tremendous benefits to a borrower. Imagine by consolidating your loans you can reduce your monthly payments up to 50% in some cases. You have the opportunity to significantly reduce your monthly payment outflow and reduce your overall interest payments on your loan. Apart from reducing your payments, consolidating your loans will also reduce and simplify your payments. Imagine have to deal with one lender rather than a bunch of lenders.

Can I Consolidate Student Loans taken by two different people?

A very common questions asking if one person can combine or consolidate their student loan with their wife or husband. Unfortunately you now can no longer consolidate yours and your spouses student loans anymore. There are many reasons but the main four reasons why it is impractical to for spousal student loan consolidation is Divorce, Death, Disability and Deferment.

One of the biggest issues that students face when entering college even with financial grants or aid is apart from room and board is transportation. If you have to commute fairly long distances then this problem is even more aggravated. Many students in such situations start to wonder if they can use their student loan funds towards buying a car. Now the short answer to the questions is yes, you can buy a car with your student loan or financial aid but there are a few conditions that you have to first meet.

Remember the main reason the government or a private lender gives you money in the form of a student loan or grant is for your educational needs. The expectation is that you will be using these funds to further your education. Therefore most of your loan money must be used for your tuition and other college related expenses. If you have any left over money from your grant or loan then you have the option to consider how to best use this money.

Again, let me be clear, you cannot use these funds in any other manner but for your education. Now a car can be considered a legitimate expense if it is for the purpose of commuting to your school. Buying a car, buying a laptop and other school related supplies can be valid reasons for your left over funds. The crucial point to note here is “left over funds from your student loan“. The main usage of your student loan must be for your tuition. Infact in most cases your federal loan or grant money is handed over to your college. The college or university once they deduct all your expenses will hand over any left over or remaining funds from your student loan back to you and this again as explained above is expected to be used on expenses that are directly related and for furthering your education.

I hope this answers your question regarding using your student loan money to buy a car. We’ve had many questions around this subject and infact have another article that talks about the same question. As usual I’m listing a few questions we get around this subject.

• “Can I buy a cheap and used car using my student loans“
• “Can I use my pell grant to buy a car”
• “I will be starting college this fall. I really need a car. There are ways for me to get to school other than my own car but they are not practical on an everyday basis. My financial aid is paying for my tuition completely. I was wondering if i could use my student loan to cover the costs of getting a car”

A very popular question around the Canadian student visa process is how much to show the Canadian embassy when applying for a student visa to Canada? The answer is pretty straightforward. All you need to work on is arranging enough funds that will support your living expenses while you are in Canada as a student and your tuition costs as well.

So basically if you are looking at about $10,000 to $15,000 CDN as your living expenses, you will need to add to that the cost of your education, basically your tuition costs and that is the amount you need to show to the Canadian Embassy. You can show financial proof in the form of your bank statements (usually for a period of 6 months) or you can show a letter of sponsorship along with the sponsors bank statements showing the required funds.

Additionally, if you’ve qualified for a scholarship or grant be sure to show documented proof for the same. This will help in lowering the amount of money that you need to show.

We get many questions on this top and I hope this answers the question. A sampling of the questions are below.

• “Can someone tell me the amount of money we have to show the Canadian embassy for a student visa ?”
• “How much bank balance is required for a Canadian student visa?”
• “Can I show a relatives bank account towards my student visa for Canada?”
  

First and the most important, always look for scholarships and grants to pay for you college expenses before considering a student loan. Only when you have exhausted all options should be even consider a student loan. Also there are mainly two types of student loans, federal student loans and private student loans. Federal student loans are funded by the Federal Government or the U.S Department of Education to be more precise. The terms of a federal loan will always be much better than those from a private lender which is what a private student loan is.

There are tons of scholarships that go unclaimed each year. Many $400, $500 or $1000 scholarships never even get applied for because people think it’s chump change and not worth applying for. Well, get a few of those $500 scholarships and it’ll really make a dent in your tuition bill.

People make the mistake of looking for one big scholarship to pay for everything when they should be targeting smaller scholarships that are more regionalized or specialized to their intended field or reflect something unique about them (son of Italian policeman, daughter of registered nurse, etc). Everybody goes for the big scholarships, the competition for those is much higher and your chances are smaller of getting it. Research and apply for anything and everything you are close to being eligible for no matter how small the scholarship.

Do a search on scholarships, search your major, your ethnic heritage, your town, your parents employers, your employer, hobbies, high school, local Chamber of Commerce/Rotary/ Lion’s Club etc. Left-handed? There is a scholarship out there for you! Older woman returning to school? There are scholarships out there for you. Do combined searches on more than one criteria “hispanic women aviation scholarships” etc.

Go to the library and ask the reference librarian for a reference book on scholarships. They usually have more than one. There are all kinds of scholarships out there, you just have to start applying yourself and make it your summer career to send out letters everyday for scholarships. Good luck!