Student loans have a way of taking over a borrower’s life. The longer you are in college, the more complex loans can become. A good way to tame those loans and take control of your financial future is through a student loan consolidation program.
Student loan consolidation programs are designed to make your life easier. To begin, instead of having several student loans with varying interest rates and due dates, you can have a single loan with a fixed rate and one low monthly payment. This arrangement allows borrowers to manage their loans in a simple manner. It also decreases the chance of making a late payment or missing a payment, which can be damaging to your credit score.
Consolidation can reduce your monthly payment as well. This is because unconsolidated loans have a maximum repayment period of 10 years, consolidated loans can span up to 30 years for repayment. So instead of having several large monthly payments, borrowers will often end up with one smaller monthly payment when they consolidate.
A smaller payment and lower interest rate aren’t the only benefits of a student loan consolidation program. Borrowers with consolidated loan packages have several options when it comes to repaying their loans. These payment plans include the standard repayment plan, graduated repayment plan, extended repayment plan and income contingent repayment plan. A variety of plans are made available in an effort to offer the borrower a flexible way to repay his or her student loans. Even better, borrowers can switch their payment plans at their discretion. Another added benefit to consolidating student loans is there is no minimum amount required to qualify for the consolidation. On top of that, the consolidation is free.
While the objective of consolidating student loans is to get them paid off in the most efficient manner, sometimes there is a need to defer that mission. Borrows with consolidated loans can qualify for deferment benefits depending on their personal situation. If you have exhausted your deferment options on your current federal loans, consolidating them could provide you with more deferment options.
The best time to consolidate student loans is after graduation. For most borrowers, the loans will come due approximately six months after they have left school. This grace period allows the borrower ample time to get their loans organized and combined through a student loan consolidation program. While it is essential to prepare for loan consolidation at this time, do not actually consolidate the loans until after your grace period has ended. With unconsolidated student loans, the government will pay the interest on the loan for the grace period. If you jump the gun and consolidate during the grace period, you will be responsible for paying on your loan immediately. If you plan on continuing your education as a graduate, go ahead and consolidate your undergraduate financing. You can easily tack on your graduate loans at a later date.
Before you decide to consolidate your loans, you should understand a few key points about student loans. First, there are two general types of school loans – federal and private. Private school loans generally have a higher interest rate then federal loans because private loans are unsecured and federal loans are backed by the government. This means that federal student loans can be refinanced at a much lower interest rate then private student loans. If you have both types of loans, you can still consolidate them. However, don’t mix the two types of loans. Consolidate all of your federal loans into one loan and then consolidate all of your private loans into another loan.
If you decide you want to consolidate your federal loans, you will need to apply for a consolidation through a federally approved lender. A quick internet search for student loan consolidation programs will yield a long list of providers willing to combine your loans. At first glance, the amount of lenders out there can be overwhelming. Do not panic, however, about choosing a provider. Because federal student loans are backed by the government, their consolidation is also regulated by the U.S. Department of Education. In short, this means that while there are a lot of companies out there pitching different promotions to get you to consolidate your loans with them, they are all really offering similar deals.
Quite often you can consolidate all of your loans with one of your current lenders. There is also the option of consolidating directly with the U.S. Department of Education. For more information on selecting a lender, visit www.loanconsolidation.ed.gov or www.finaid.org. Both of these sites provide useful information on what to look for in a good consolidation lender.
Shopping for a private student loan consolidation lender can be a little trickier. Most schools have a preferred lender list, but don’t necessarily go with that provider. Instead you should do some homework. Visit the Web site for the Project on Student Debt at www.projectonstudentdebt.org and click on the link for resources to get more information on selecting a private loan consolidator.
Student loan consolidation can be an intimidating process. Just remember, the programs are out there to make your life easier. It is a free and virtually painless process to consolidate your loans. In return you get a lower monthly payment and interest rate – that alone is worth the effort.