Student loan consolidation rule
In todays world, every student takes up some loans for the fulfilment of his academic ambitions which he tries to consolidate at the time of completion of his studies. consolidation as it is, though looks tempting, what are the loopholes in such an exercise is a matter of concern for the students. To clarify all these doubts, a general student loan consolidation rule has been released by the federal government with the aim of saving the innocent students from tricky lenders.
The student loan consolidation rule in general lays down the methodology for applying for the consolidation and the precautions which the students need to adhere to while going through such an exercise. The Federal Government as it is assists credit worthy students to pursue their academic dreams by disbursing loans like the Stafford ( which may be subsidized or unsubsidized) and the direct PLUS loans. It may also be possible that different types of loans could be taken up at different points of need and by the time the student reaches the end of his education tenure or the grace period of the loan , since repayment has to be done, it would be easier if one single payment loan could be drawn thereby repaying all the existing loans. The clubbing of such loans is possible under the student loan consolidation rule that both the Stafford (whether subsidized or unsubsidized) and the PLUS loans could be transformed into one single loan provided these loans are drawn under one social security number either that of the student or the parent if the due amount exceeds $10,000. However, if loans are drawn under two social security numbers for example, one Stafford loan with a repayment amount of $5,000 on the students name and one PLUS loan with a repayment amount of $7,000 on the parents name, then these both cannot be consolidated even though the aggregate loan amount exceeds $10,000.
The student loan consolidation rule helps the student in the following ways :
Too many lenders are reduced into one single lender and one single payment thereby making it easy for the student to remember his payment easily and make the necessary arrangements for honouring the same. In this way, his credit worthiness also increases a lot. In these turbulent times, having a credit worthy history makes a lot of difference that when he applies for any financial loans in the future, the same would be easily granted to him without any high interest rate charges for the same.
At the end of the tenure of the education or the grace period, if any student attempts to consolidate, he would be extended an interest rate cut of.6% on the total repayable loan on every instalment. In addition, if he directs standing instructions to his bankers to debit the loan amount from his account on a regular basis so that there is no chance of default, then he is additionally given a bonus of.25% rate cut on the loan amount.
In this way, if he adheres to all his payment requirements and his credit worthiness is established, then, he would be eligible for a 1% interest rate cut after 36 months of such payment or he can wait further till 48 months expiry so that he can enjoy a direct 2% rate cut on the remaining loan amount. Now, the gimmick here is, if the loan amount after the repayment for 48 months is too low that 2% rate cut makes no difference, then cleverness lies in opting for the 1% rate cut after 36 months itself and vice versa. Ultimately, the student has to estimate the best repayment option so that he could reduce the burden and repay the reduced amount.
All these calculations about the student loan consolidation rule will hold well only if the student adheres to his payment schedule and repays the amount on time without any default. Even if a single payment is dishonoured even due to forgetfulness also, all the above benefits would be nullified leave aside cases of deferment, forbearance or default. So the best option is to give standing instructions to the bankers about the loan repayment on a regular basis and ensure that the required amount is credited into the account before such payment is done.
The student loan consolidation rule also is not very approachable in case the student possesses a variety loans like the Perkins, the private loans in addition to the Stafford and PLUS loans. Consolidating all these loans would not entitle the students to enjoy the above mentioned benefits. Especially, if he is planning to become teacher or social worker in the future, for whom loan forgiveness could be granted, then he should never enter into such an exercise. Instead, he could consolidate the Federal loans for receiving the above benefits and the private and Perkins loans into one single lender if he desires so.
In addition to all the above mentioned monetary benefits, the student loan consolidation rule also emphasizes some regulatory benefits like floating the hassle free application forms online, foregoing credit checks because eligibility into the federal loans itself is a testimony of creditworthiness, doing away with co-signer requirements, non-disclosure of portfolio of the student and even facilitation of electronic signature for the student if he opts for the same.
In this way, the student loan consolidation rule as administered by the federal government is trying in many ways to make it easy for the student to honour his payments on a timely manner.