Should I Consolidate My Student Loans?
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Just everyone’s situation is different in some way or another when it comes to their finances and outstanding student loans after graduation. If you are trying to decide whether or not you should consolidate your federal student loans, consider the following:
Do you need to free up some cash? Depending on the amount of debt you have left, loan consolidation can help by extending the term of the loan and lowering your monthly payments.
Consider the interest rate – you may be able to lock in at a good rate and save money. If you can get a loan that is a point or more lower than you are currently paying, it may be a good move. Also, if your income increases you can prepay without fear of penalties.
Do you only have a year or two left on your loans, or a balance of just a few thousand dollars left to pay? If so, you may want to reconsider, as switching lenders late in the game may not be worth the hassle when compared with the amount you would have to repay.
If you feel that a student loan consolidation is the answer for you, then do your research – not all consolidation loans are the same. Keep in mind that you are looking for a consolidation loan not a refinance. There are private, government approved lenders or government lenders who will offer various interest rates, benefits like interest rate reductions for on-time payments, the ability to have automatic withdrawal, and so on. You must also keep in mind that you cannot combine public and private loans – if you have multiple private loans or multiple government loans, you can combine those of course.
Can’t Make Your Loan Payments?
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It happens to the best of us, especially in these tough economic times – you miss a student loan payment, or two. You’re going through a rough patch and now wonder what the consequences may be for your lateness or delinquency.
Well by missing just one payment, you are considered delinquent. So not only will you be hit with late fees, but your non-payment will affect your credit rating (lowering it), making it harder to get a home loan, or finance a car when you want. Furthermore, if you miss your payments for nine months (sometimes less), you are then considered to be in default and that’s when the proverbial you-know-what hits the fan. Your loan might be turned over to a collection agency (more fees), your credit will be shot, you could be taken to court (even more $$) and the government could garnish your wages (up to approximately 10 percent) until the debt is repaid. Wait, there’s more – you won’t get that income tax refund you were counting on and you won’t be receiving any more financial aid – that goes for your kids too.
If you’re in default already, then seek the advice of your lender right away to see if there is a way to get you back to good status. If you are currently struggling to make those student loan payments, then try consulting with your lender to see if they can adjust your repayment plan.
Another way to keep yourself out of default would be to see if you qualify for deferment. Deferment is a temporary reprieve from your loan payments and there is usually a time limit of up to a few years. If your federal loan is subsidized, the government will take care of the interest during the deferment, however if it is unsubsidized, you will have to pay for the interest that accrues even while payments are not made. You should contact your loan servicing center for deferment guidelines. Always continue to make your loan payments until you know that you have been approved for deferral, otherwise you could end up en default. Once you are in default, you are ineligible for deferment.
There is also something else called Forbearance. Forbearance may be good for those people who don’t qualify for deferment but are struggling to make payments because they’re doing an internship, or their payments are greater than 20 percent of their gross monthly income, or other financial hardship. It works like the deferment in that you have to apply for the relief, and must make your loan payments until you know you have been approved.
About Student Consolidation Loans
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What is Student Loan Consolidation?
Very basically, it is the combining or merging of several student loans into one single loan that usually results in a lower monthly payment than the prior situation, therefore easier to manage.
Why Consolidate?
Well, it can become very overwhelming to be responsible for several loans every month, all with different payment deadlines, in addition to other responsibilities you may have. The chance of missing one of the loan payments and having a delinquency appear on your credit report is not the way you want to start life after college. Bad credit is not something you want to follow you as you start your career and job search.
By consolidating your student loans, you have the opportunity to take advantage of low, fixed interest rates. The current laws regarding student loan consolidation is that the interest rates cannot exceed 8.25%. There is no credit check or application processing fees to pay and monthly payments can be made electronically. Remember, making electronic payments allow you to schedule ahead, helping you to prevent missed payments.
Students who are still within their grace period, or who are still taking classes may qualify for government student loan consolidation. It can be confusing trying to comprehend the rules regarding the qualification of applying for student loan consolidation – our aim is to bring you the latest information that will help you make the decision that is best for your situation.
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