Student Loan Consolidation

First off, for those that are not clear or need more information about consolidation such as eligibility, what types of loans can be consolidated, how are the interest rates calculated and more, head over to our previous article on “What is Student Loan Consolidation” for a detailed overview of the process.

There are dozens of reasons why you would want to consolidate all of your student loans. Some may simply want to have a single lender and a single payment allowing ease of tracking and payments.  Others may want to take advantage of the flexible payment options some programs offer that others do not and still others may want to consolidate into a single lower monthly payment.  We have covered in detail the many advantages to consolidating your student loan and the disadvantages of consolidation as well. Whatever your motivation, the following are three steps you need to take in order to consolidate your student loans.

Preparation

The first thing you need to do is get prepared.  You need to pull together all of your paperwork on your existing loans as well as information on amount due, interest rates, loan numbers, and loan servicer’s.  You will then want to take that information and analyze all of the available student loan consolidation loans that are available.  Do not assume that the first loan with a lower payment is the right one for you, there are many new types of loans including the very popular income based repayment plan.  There are several consolidation calculators available online as well as countless guides to help you decide what type of loan you want to consolidate into.  This is all part of the preparation stage for your consolidation loan.

Application

The next step is you need to pull the application and all of the application instructions for your chosen loan.  Be certain to review all of the requirements listed on the application more than one time and use a separate sheet of paper to make a checklist of all the items that need to be submitted with the application.  Most applications these days are initiated and completed online and then you finalize the process by mailing a hard copy of the application along with supporting documentation to the lender, though it is may be useful to note that almost every lender that offers an online application will also allow you to apply by mail and circumvent the online process.  This is important to know so that you do not spend too much time making certain the online systems is compatible with your computer or if you do not have free access to a computer, the mail in option will save you a lot of money in paying for computer access.

Follow-Up

One of the most important parts of applying for your student loan consolidation loan is following up on your application to ensure it is received, properly processed, and that you are able to clarify any questions that may arise on review of your application.  There are many stages that your application goes through before it is approved and completed.  These stages include, verification, application review, contacting the existing loan holders, getting existing loan payoffs, etc.  All of these steps and processes take time and you need to understand that the loan itself may not be consolidated within a couple of months.  So be certain to keep making your payments to your current lenders during the consolidation application process, never stop making a payment until you are instructed to stop by the new lender.

The entire consolidation process is normally seamless and without major hiccups or problems.  But with that having been said you want to take charge of your application and pay particular attention to step 3, follow-up, and stay on top of the the process in order to make certain it is completed.  No one cares more about this issue than you, therefore it is in your best interest to make certain it happens.

A while back we talked about the benefits or advantages of student loan consolidation. Let us now look at the cons of consolidating your student loans.

• If your student loans were taken out recently then the chances of you saving on interest rates are very low. Consolidating your student loans is not going to help you much. The rate of interest on federal student loans post 2006 are all fixed rate of interest and in all probability your consolidated loan interest rate will end up being the same.
• If by consolidating your loan you find that the payment term is extended quite a bit then you are better off not consolidating. Yes, your monthly payments might reduce but by extending your loan payment term you are effectively paying more money over the life of your student loan.
• Loss of deferment period. Usually student loans will have a grace or deferment period of about 6 months from the time you graduate before loan payments begin. If you consolidate your student loans then you loose whatever grace period you have left and your consolidated loan payment will begin immediately.
• Loss of subsidized interest on your Perkins Loan – If you consolidate your Perkins loan you will forfeit the subsidized interest rate benefit of the Federal Perkins loan. This is different in the case of the Stafford loan. In the case of the Stafford loan, you will still continue to get the benefit of subsidized interest rate even after loan consolidation.
• Another con of consolidating your Perkins loan would be the loss of the nine month grace period and also the forfeit of Perkin loan forgiveness options. If you have a Perkins loan then consolidating your loan is best avoided.

Consolidating your student loans is not automatically the right choice. Yes there are a lot of benefits to student loan consolidation but it has to make sense on the part of the borrower. The borrower has to weigh the pros and cons and then decide if loan consolidation is the right choice.

There are many reasons to consolidate your student loans. Let’s take a look at the top 10 reasons or advantages.

Advantages of Student Loan Consolidation

1. One Single Payment instead of multiple loan payments – Are you drowning with all the different student loan monthly payments you have to be on top of and make each month. Consolidating your student loans will get rid of this chaos and leave you with a single monthly payment that you can easily keep track of.
2. Tailor you new loan to suit you – By consolidating your loan you now have the option to choose which lender gives you the best deal in terms of repayment options. Can you go into a more extended repayment plan? Maybe an income contingent repayment option could be worked out. All these options could help you in reducing your monthly loan payments.
3. Reduced Interest Rates – Loan consolidations can help you reduce your current loan interest rates substantially enough to make those monthly payments more affordable.
4. Deferments and Forbearance – Consolidating your loans will mean you have now the option to once again defer your loan if you meet the specified requirements. This will go a long way in giving you some extra time with no monthly payments to be able to make your monthly payments once they begin.
5. Save on Fees – There is no fee to consolidate your federal student loans. Do not worry about additional fees being slapped on you if you go in for loan consolidation.
6. No Credit Check – Usually you will find that there will be no credit check done when you consolidate your loans. If you have a less than perfect credit score do not let that turn you away from exploring consolidation.
7. No penalty for early payment – There will be no penalty incurred when you pay off your student loans earlier than scheduled. In some cases you might even get a bump in your credit score.
8. Simple and easy process – The process to consolidate your student loans is straight forward and pretty simple. It is not time consuming and usually will have only one application to fill out once you decide on the lender.
9. Switch lenders – Consolidating your student loans give you the option to switch lenders and in the bargain get a better interest rate, repayment plan, better service and better experience in general.
10. Added incentives and perks – Lenders actively seek you out with great incentives and perks to help you make up your mind about consolidation. Reduced rates and better terms are some of the perks you can negotiate before you decide on a lender.

So should you be consolidating your student loans? After all 10 reasons listed above make great sense. Hold on, before you start calling financial institutions learn what are the disadvantages of student loan consolidation.

The question really has a number of nuances to it. Let us break it up as much as we can. Firstly, let us look into consolidation. Can you consolidate your loans? Ofcourse you can, just be smart about the timing on your consolidation. Look carefully into the reasons for consolidating, weigh the effects of your loan consolidation on your credit score and decide if loan consolidation makes sense.

As far as deferment is concerned, yes both subsidized loans and unsubsidized loans can be deferred. Subsidized loans such as Stafford loan or Perkins loan can be deferred with the government bearing the interest payments during the deferment period. In the case of unsubsidized loans such as the PLUS loans and private student loans from banks and other financial institutions, the interest on the loan is accrued and will add to your student loan amount.

Deferment of loans again is on a case by case basis. Can I defer my loans if I go back to school? Yes, you can but they are certain restrictions. You can defer your loans only if you decide to go back to school on a more than half time basis. Once your loans are deferred then your payments stop for the period of deferment. Do ensure you maintain your school status. You cannot be taking a break from school or skipping a semester or your loan deferment will end.

So if you are considering consolidating your loans and then deferring them while you go back to school, do ensure that you firstly shop around for the best loan consolidating option and ensure you understand and meet any restrictions or clauses there might be to defer your loan.

I’m listing some of the questions we get on this subject below. All personal information has been removed.

• “Can I consolidate my loans and defer them if I enroll in a part time course?”
• “I am thinking of going back to school but I need to stop my loan payments while I’m at school. Is deferment an option for me?”
• “Can I consolidate my stafford loan if I go back to school?”
• “Can my stop payments on my federal loan when I’m back in school?”
• “I want to consolidate my loans with Sallie Mae or another private direct loans to lower my payments. Do I still have the option for deferment for lack of income or going back to school?”

Once in a while, everyone needs a little help with the bills, and college student loans are no different. Many times, students apply for and receive student loans with one thought in mind, and that’s finishing school and starting to earn a living.

Because student loans don’t have to be repaid until the student has graduated from their college or university, it’s easy to forget about the debt hanging over you, in the shadows, waiting to rear its ugly head. In addition, there is no limit to the number of student loans a person can receive, and while they may seem a blessing while you’re in school, they can all come back to haunt you years later.

For students who have acquired more than one student loan, consolidation is often a wise and practical solution to combining debt into one easy, and hopefully, low interest payment. Because student loans often come attached with higher interest rates, it’s common for lending firms and banks to offer consolidation loans with fairly low rates of interest. Of course, such rates may well depend on your credit history, whether or not you’ve paid bills on time, and also if you have collateral to put up to secure those loans. Such is usually not the case for those fresh out of college, but there’s always the chance that you’ve bought and paid for your car, or furniture, or rent so that the lending firm can check your payment history.

Most local bank branches offer loans consolidation opportunities, but if you happen to get turned down there, you may want to try other lending firms. However, do proceed with caution when dealing with small corporations or companies and always make sure you read the fine print. Visit such companies with a list of questions, and if they don’t answer them, try someplace else. If they don’t address your concerns before you secure a loan from them, you can bet that they won’t provide much help, or customer service, after you’ve signed on that dotted line.

Compare lenders and choose the lender who can offer you the lowest interest rate, and one who will work with you to determine your repayment schedule. Know what is common, and what is not, to better prepare yourself for making a wise decision. Never be in a hurry when it comes to financial matters, and better yet, make sure that any lender that you choose offers sound business practices and doesn’t have any complaints lodged with the BBB or on online forum and discussion boards.

Some of the most important things to consider when researching loan consolidation options is to know a little something about interest rates, and always make sure that whatever loan you secure does not penalize you for early prepayment. While consolidating student loans is a good idea, it’s a bad idea to undertake any financial move without at least knowing the basics. Play it smart and do your homework before you sign any binding and legal financial document.

For those students wishing to get a college education who do not qualify for scholarships and who cannot work who cant work enough to cover their college expenses, student loans can provide an answer. While borrowing money is never the ideal way to pay for anything, there are hundreds of thousands of people for whom a college education would have remained out of reach were it not for student loans. Even state colleges and universities can cost state residents upwards of $15,000 per year.

While student loans may clear the path to a college degree for you, you will eventually come to the end of that path and have to start repaying the loans. Youll also be at the beginning of your career, and probably have the expenses associated with setting up housekeeping on your own, funding your own transportation, and managing all your own finances. Your starting salary may barely get the living essentials covered, and having those student loans hanging over you can keep you struggling for a very long time.

Benefits Of College Loan Consolidation

But there is help. College loan consolidation is one method of reducing the financial burden of those student loans. College loan consolidation will allow you to take out a single large loan with which you can pay off all your student loans, so that instead of having to make several payments each month, you only need to make one. And you may find that the monthly payment on your college loan consolidation is less than the total of those for your student loans.

A college loan consolidation may also benefit you in the form of lower interest payments, so that you pay down the principal more quickly than you would have if you continued paying off your student loans individually. Student loans are notorious for having varying interest rates, and the odds are excellent that some of yours will be costing you more in monthly interest charges than a college loan consolidation will.

The benefits of college loan consolidation are numerous

• Lower interest rates
• Lower monthly installments
• Lower payoff amount or possibly all three.

Getting a lower APR means that the total amount of money you repay over the life of the college loan consolidation will be less than what you would have paid for your student loans.

The Single Payment Advantage

And it will save you the hassle of having to make sure, several times each month, that you have enough in your checking account to cover you upcoming student loan payment. If you only have one monthly payment, you can set aside enough to cover it at the beginning of the month and be done with it. You can even make arrangements for your college loan consolidation payment to be electronically deducted from you bank account each month and forget abut the check writing altogether!

Consolidation is one of those things that you really must do your homework on before you make any decisions. It’s a complicated financial proposition, and you really should sit down with a professional (or at least a very knowledgeable friend or relative) so that you can understand exactly how consolidation will affect you.

Consolidation loans are “sold” with 2 promises, both of which are true. The problem is what you’re not told, and that’s what you need to make sure you understand. First of all, a consolidation loan does allow you to combine a bunch of loans all into one. This is part of how they’re “sold”: “Make just one payment a month! So convenient!”

That’s true. A consolidation loan tears up all of your old loans, and replaces them with one mega-loan. The new loan has all new terms and conditions (keep that in mind).

Second of all, you’re told that a consolidation loan may just save you “hundreds of dollars a month in payments!”.

That’s true, too. But here’s where the story starts to go off the rails.

You say you owe $68,000. If you leave it the way it is, or if shop it around to another lender, you’re still dealing with a debt of $68,000. So now ask yourself this – if a new lender comes along and promises you that you can pay less every month, how is this possible?

And the answer is….

You’re going to make those payments for a lot longer than you’re currently scheduled to make them now. If I owe you $100 and pay $50 a month, I’ve paid you off in 2 months. If you agree to accept $10 a month, I’ll be making payments for the next 10 months instead.

That all sounds nice, except you’re forgetting one thing. YOUR loan accrues interest. The longer it takes you to pay, the more interest accrues on the balance. There’s the really big problem with consolidation loans – you might make lower payments every month, sure, but you’ll make those lower payments for a LOT longer, and in the end, you will have paid back a LOT more money. That’s the “cost” of stretching out your repayment period.

What’s a “lot” more money? On your $68,000 loan – who knows, we could be talking about ten, twenty or thirty thousand dollars MORE.

Here’s the other problem – I referred to it earlier. Your existing loans have terms that may (or may not) be more favorable to you then the terms you can get on your new mega-loan. It’s not just what your current rate is that matters, it’s also important to keep tabs of what your ceiling is. I’m assuming that your loans have an interest rate “cap”. Moving to a new loan may bring you a higher cap, and I think it’s pretty to safe believe that interest rates are going to be heading upwards – certainly over the next 15 years or so, while you’re be paying back your loans. You need to make sure that you’re not turning loans with a 10.5% interest rate cap into a new mega-loan with a 15% cap.

Never forget that anyone who is offering to consolidate your loans is doing it for one reason only. They see an opportunity to make money. No lender is your friend – everyone of them is a business. Some of them spend an awful lot of time telling you how much they want to help you – you can trust that the relationship is actually a little more one sided in the other direction, than that.

Do your homework. If you’ve been in school a while, hopefully you’ve developed a passion for learning – apply that to learning about your financial options. For many people, consolidation is NOT a good idea. The only way to find out is to do your own research, and not listen to the siren song of the lending companies.

I hope that helped – good luck!

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.

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?

 

Consolidating your private student loans or any student loans for that matter can make financial sense if you get a better rate of interest and your term of the loan remains unchanged or better is reduced. This is a crucial factor in deciding if consolidating your loans is worth it and if it makes financial sense.

If however your consolidating company offers to lower your monthly payments but increase your repayment term then purely from a financial perspective this does not make it a good deal for you. You don’t know have to know much about loans to understand what this means – the longer you stretch your repayment, the more interest you pay on your loan.

For the sake of argument, let’s assume that you are hoping to consolidate $30,000 of private loans that will enter a 10-year repayment at 8.9% interest. Right now, you would be looking at 120 payments of $378.41 a month. Consolidate that $30,000 into a 20-year loan at the same interest rate, and your payment drops to $267.99 a month – a savings of $110.42 a month. I’m sure you could put that extra $110 to good use.

But here’s the catch – over 10 years, your total payments will be $45,408.36. How’s that compare to 20 years, where your total payments will be $64,318.53?

What’s the privilege of cutting your monthly payment by $110 going to cost you? $19,000. Wow, that’s the list price on a Honda Civic, a Mini or a Pontiac G5.

Make that same deal on your government loans, and you’re looking at another $15,000 in extra interest. That’s quite a lot to pay. Before you consider consolidation, take a look at your lender’s other options, including Income Contingent Repayment, extended repayment, graduated repayment, and the brand new Income-Based Repayment. Do the math, and see which of these might make the most sense for you.

Don’t be in a hurry to consolidate or consolidate for the sake of it, there are several options available to you and unless you do your due diligence, it will prove to be a very costly decision.