With the increasing price in education and demand for a better life, most students tend to take up more than one federal education loan during their university period and later for their continuing education. In most cases students do not understand the added responsibility that comes with these loans. The major problem comes when they have to repay several loans after their college ends, this is when most students start realizing the cost of loans taken and look out for ways to minimize their monthly expense.
This is when student loan consolidation comes into action for many students. Loan consolidation can significantly reduce the amount of loan taken from private or federal lenders by combining the total amount into one loan which helps the student to pay for only one bill at the end of month. Moreover the interest rate of such a loan is quiet low compared to private student loans which is another fact why they are much more popular among students.
An average graduating student gets a degree along with a $20,000 loan to pay back, this amount can be considered high when comparing the student’s situation at that period of time. Living in the transitional phase from changing career and with their first step in the real world these students normally lack the ability to carry their financial burden successfully upon their shoulders. Considering this fact the government offers federal loan consolidation programs that can mitigate the need of paying numerous bills each month. The new loan offered by the federal government student loan consolidation program is a fixed rate loan unlike any other student loan, these loans are very easy to apply for compared to other federal loans for regular students and can also help you to save a lot of money at the end of repayment period.
Unlike other loans, a federal loan consolidation program should be for more than $7500 and has very few background checks. The student should not worry about the eligibility requirement as the lender will verify everything with their own resources.
Once approved the lending company will pay all the previous loans taken by the student and the student has only to pay the new loan amount with a lower interest rate in an even longer period of time. These student loan consolidation programs come with various repayment periods which are lower than many other federal loan programs, thus students can use the grace period to further reduce their rate of interest. A major advantage of consolidating your loan is that it gives you time to settle down after your college period, most students can not find a job instantly they leave their college which can be an added pressure on students who already face problems of repaying their loan. Consolidating several loans you can get enough time to think about your career prospective and decide to choose a better paying job than choosing a less attractive job with low pay only to pay for your education loan.
If in case a student can not get a student loan consolidation program then they can use the regular debt consolidation plans too consolidate their student loans but these general loans can cost them more than an average student loan consolidation program as these loans are meant to be sold with higher interest rates and low repayment period.
By: Ian Wilkie
Posts Tagged ‘Federal Loans’
Student Loan Consolidation Info – How Good Are Federal Student Loan Consolidation Programs?
December 29th, 2009Am I Eligible For Student Loan Debt Consolidation?
December 17th, 2009
As a student who has taken admission in college for the first time or as parents who are planning to send their child to college, you can’t help but cringe, when you have to purchase textbooks worth thousand dollars or when you receive a bill for tuition fees. The rise in expenses associated with college education in United States has led to increase in demand for student loans. This has, in turn, increased the requirement for student loan consolidation services. Students, whether pursuing their studies in a graduate school or studying abroad have accrued huge debts, much beyond, what was considered reasonable, a few years back. Student loans have lower than normal interest rates and very flexible payment terms. This is because these loans are specifically meant for the people who are not employed.
But even with such low interest rates and convenient pay-back terms, many students may find it difficult to pay these loans as per the payment schedule. Student Debt Consolidation programs are customized to assist the students in managing their loans and thereby helping them to avoid defaulting on their debts.
There are debt consolidation agencies which are specially meant to manage debt problems of the students.
Basic Types of Loans
Student loans can be classified into federal and private. If you are one of those students who have taken both types of loans it is strongly recommended that you do not consolidate these two loans into one. Out of these two loans, only loans classified as federal can be refinanced as they are backed by the government. You should package all the federal loans into one and solve them before heading for the private loans. Private loans are mostly unsecured in nature therefore they charge interest rate which is higher than federal loans.
Criteria for Consolidation
If you would like to go for consolidation of your student loan, you will need to meet certain criteria. Firstly, it is required that either you should be out of the school or college and be in what is defined as the “grace period” of your loan or you must have already started repaying the loan in order to take advantage of student debt consolidation service. When you get in touch with a consolidation agency providing service to students, you must begin by asking them to get in touch with your creditors.
The agency will negotiate with these creditors and convince them to reduce rate of interest as well as your monthly payment. The repayment of your student loan has a direct impact on your prospects of taking loans in future, as is the case in any other type of loan. In case your student loan becomes more than 85% of total monthly income earned by you, it will be assessed as a negative score for any future loans. This emphasizes the importance of timely repayment of your student loan and its effect on your future decisions of borrowing money. Based on their evaluation of your financial position and repayment schedules, some debt consolidation agencies can qualify you for further debt reduction programs. These addition reduction programs assist you in many ways, most important of which is reduction in your interest rates. They also include savings made during grace period, automated direct debit payment and on time payments.
Beware
It is very important to state here that not all consolidation companies are genuine in nature. Therefore, you must apply to the consolidation company which is a famous company with credentials to support. Ignoring this advice may lead to substantial increase in your problems as such illegal companies will lead to higher debts.
By: John J. Baker
Student Loan Consolidation Interest Rates
November 30th, 2009
Lowering interest rates have made student loan consolidation interest rates an option being considered by many people. Nearly 80% of students have some type of student loan by the time they graduate and the average loan for a student is $10,000. For many students and parents, education loans have come from several sources, have varying interest rates, and have higher payments that one is comfortable with.
Education loans fall into two categories, Federal education and Private education loans. When a student is considering consolidation it is important to keep these categories separated. The method for calculating consolidation interest rates for federal education loans are strictly regulated by the government. The education loans provided by private lenders do fall under the same restrictions and requirements and can vary greatly depending of the lender gave the loan.
aStudent loan consolidation interest rates for federal loans are calculated by taking the average rate of all of the loans and rounding up to the nearest 1/8%. The loan, then will fall somewhere between the highest interest and the lowest interest. The maximum rate is 8.25%.
There are some instances when an individual with a PLUS student loan will be able to receive a lower rate by consolidating. The cap on a PLUS student loan is 8.5%. However, when the PLUS is consolidated, the cap is 8.25%. By consolidating the PLUS loan a student can save 0.25%. This is called the PLUS Loan Loophole.
When private education loans are consolidated an individual will want to compare the interest rates and fees of different lenders. These are calculated just like a mortgage loan would be. Lenders calculate these loans on either the prime rate plus margin for the borrower and co-signer or the LIBOR. They usually charge between 1% and 5% origination fees depending on the credit of the borrower. This fee is included in the loan.
Deferred interest will also affect the total of a consolidation loan. Lenders usually capitalize the deferred interest of the original loan and include that in the consolidation. There also be discounts and benefits that must be paid back to the original lender when the loan is consolidated.
The benefits of consolidation is that all of a person’s loans are in one location and the same interest rate is being paid. In addition, the repayment period is often longer than the original repayment period so the monthly payment will be lower. However, it is important to consider what the final cost of getting a consolidation will be compared to maintaining the original loan. It is also important to talk to a professional who can talk about the options that are available to help an individual find the best interest rates that are available.
By: Charles Gloson