Consolidate Your Student Loans

Strategize Your Loan Repayment Process

Student loan consolidation programs give borrowers a very powerful tool for managing problematic repayment issues. Borrowers that default on federal loans cost taxpayers millions of dollars in repayment. Once upon a time this was a standard. Thanks to government intervention and a general revision in attitudes, a student consolidation loan is simply another variety of student loan. Arm yourself with the know-how to strategize your loan repayment process.

Consider Consolidation

When you consolidate loans, the original loan obligations are paid by your lender, either federal government or private lender. The lender creates one new loan with a lower interest rate and longer term of repayment that results in the classic “low, monthly payment.”

Typically borrowers are advised to consider a student consolidation loan thoroughly. Questions you might ask yourself prior to consolidating:

• How many student loans do I have to pay back? How many lenders?
• What is the total of monthly payments in student loans?
• What are my interest rates?
• How many payments remain on each?
• Have I defaulted on any loans?
• Do I have difficulty managing my monthly payments?
• What other non-negotiable big-ticket monthly bills do I have?

Federal Direct Consolidation Loans

The Federal Direct Student Loan program incorporates a Direct Consolidation Loan. Loans ineligible for the consolidation include private loans, federal Law and Medical Assist, Primary Care and Plato Loans. Features and benefits include:

• Consolidation of all federal loans with a few exceptions.
• No-fee loans.
• Fixed interest rate is calculated with the weighted average interest of all your federal loans as of the day you apply for consolidation. This figure is rounded up to the next 1/8 th of a percent.
• Flexible repayment terms.
• Unlike FFEL and private consolidation loans, the Direct Consolidation Loan does not require a minimum loan amount to borrow.
• Loans that are in default may still be eligible for this program.

Federal Consolidation Loans Through a Private Lender

Borrowers that hold one or more FFELP loans may choose to consolidate if loans are in grace period or repayment. Loans classified as default are ineligible. Nearly all lenders that administer the FFEL program bundle in a Federal Consolidation Loan option. Typical features and benefits include:

• Consolidation of one or more FFELP loans.
• Minimum amount required to borrow.
• Borrowers are not subject to credit checks.
• Fixed interest rate is set by the government based on the weighted average of all your loans as of the day you apply for consolidation. This figure is then rounded up to the closest 1/8 th percent.
• Defaulted loans are ineligible.
• New grads may qualify for an interest rate discount for consolidation during the grace period.
• Borrowers that pay a select number of consecutive on time payments may receive an interest rate discount.
• Borrowers that agree to automatic payment withdrawals from their checking account may receive an interest rate discount.
• Choice of repayment plan.
• Select borrowers may receive up to 30 years to repay.

Private Consolidation Loans

Private consolidation loans allow borrowers to consolidate high dollar private loans. These are credit-based products that require a minimum amount of debt in order to borrow. Private consolidation loans may differ quite significantly from borrower to borrower. Features and benefits are unique to each lender and the business is quite competitive. Not every lender will offer a private consolidation loan. General features may include:

• Variable interest rates.
• Up to 30 years to repay the loan.
• No penalties for early repayment.
• Borrowers with poor credit may apply with a co-borrower.
• Applicable loans must have entered the grace period or repayment term to consolidate.
• Borrowers may receive interest rate discounts for consecutive and on time payments.
• Borrowers may receive interest rate discounts when they agree to setup payments on an automatic deduction plan.

Strategic Points to Keep in Mind

If student loan consolidation seems too good to be true then you must take more time to consider. This type of repayment option is not for everyone. You will spend much more on your education than you would had you muddled through with your standard student loans. However, you must avoid delinquency and default at all costs.

Once your loans have entered default status you will be generally ineligible for an immediate consolidation. In this case you will be required to make arrangements with your lender who will, in turn, require you to make a set number of payments on the loan before you will be eligible to apply for consolidation.

Make certain any consolidation loan for which you apply is free of early repayment fees. Consolidation loans generally remain eligible for deferments if you should require one. Before you fly into a consolidation loan with any type of lender, consider your financial situation now and in the future and consult with an experienced loan manager.