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Consolidating student loan

Getting over the Student Loan Nightmare.

The recent news about a 1.90% increase in the interest rate on consolidating student loan by the government has disappointed many students. While it seems like a major hike in the interest rate, but surprisingly the rates are at their lowest in nearly the past four decades.

The interpretation of this piece of information will signify how essential it has become to consolidating student loan if you want to save on your student loans.

Different types of student loans:

Lets take a look at some of the different loan options available for the students. To begin with we have Federal Perkins loans which are usually granted by the financial aid office of the college. The financial aid office carries out detailed procedures to determine the students who qualify for such loan programs as these loans are based on needs. After ascertaining the list of students who can be granted a Perkins loan, the financial aid office also works out to on how much can be granted to each of these students. The funds to be distributed in the form of Perkins loans are usually very limited with most colleges and universities, and for this reason such loans are awarded very selectively.

The other option, which is more commonly used by most college students, is to get their education sponsored through a Federal Stafford loan. This consolidating student loan option is used extensively by students pursuing both graduate and undergraduate school. There are two types under this, the first one being subsidized Stafford loans under which the Federal government makes payment for the interest on the loan while the student is still in school and even during the grace period provided after graduation and the second one is unsubsidized Stafford loan where Federal government provides no assistance and the interest during the school period will also have to be paid by the student.

Apart from government sponsored loan programs the students can also make use of private student loans which are available through a variety of lenders. These are usually used by the students to cover up the gap between the total cost of education and the amount received through financial aid.

Consolidating is the key:

Once the student has completed school and the grace period is also about to end, worries

about paying back clutter the students mind. However daunting paying back for student loans may sound, resist the temptation to dodge on your student loan payments.

Defaulting in loan payments offers no solution as your credit ratings get seriously affected. Also, declaring bankruptcy may not help because student loans are granted immunity to bankruptcy. Apart from this there are some serious consequences which will directly affect your career, as penalties are imposed by the IRS on student loan defaulters and corrective measures may involve interference with your wages.

The smartest move to make repayment easier for student loans is to get all the existing student loans consolidated. Consolidation comes with a lot of advantages and convenience for the students.

Consolidation is a method of getting a refinance after all the outstanding loans have been clubbed up together. With a new loan amount, all the existing loans are paid off and the student is liable for this new loan only. While getting the loans consolidated the student can extend the term of the loan to suit his convenience and also lock in the interest rates. The monthly payments can be brought down by consolidating your student loan for a term longer than ten years, which is the usual repayment term for most Federal loans. The possibility to extend the term of the loan is dependent on the total outstanding balance and if the balance is high it can even be extended up to 30 years. Smaller monthly payments can make it much easier for you to pay back your student loans, although this would mean increased amount of interest to be paid over the loan.

The consolidated student loans are not subject to prepayment penalties and you can even go ahead with paying more than the minimum monthly payment to clear up your student loans faster, once your income increases.

The head start.

Some new changes have been made this year which we shall discuss here especially for students who have not yet graduated. The new rule allows the students to move ahead with consolidation of their loans even while theyre still in school. In case after consolidation you pick up more loans those can either be consolidated separately on can be consolidated along with your already consolidated student loans. Students who are in their six months grace period are also eligible for an additional discount of half a percent on the interest rate of the consolidated loan. Also consolidating during the initial months of the grace period will not mean that you will lose out on the entire race period, because the lender can delay the disbursement of consolidated loan till the end of the grace period. By doing this the student is able to lock in the current rate of interest while enjoying the grace period as well.

Consolidation can be carried out for Perkins, Federal Stafford and PLUS Loans, and even the earlier carried out consolidations can be reconsolidated. Consolidation is not possible for private loans because there is no Federal guarantee associated with such loans. Usually the lenders will require that you have an outstanding balance of more than $7,500.00 if you want to get your loans consolidated.

Reasons to consolidate:

Consolidation comes with loads of benefits for the student. Here is a list of some of the benefits:

1. With consolidation the student is able to lock in a low fixed rate of interest for the entire term of the loan. However, not everyone is lucky enough to get the lowest rates on consolidation.

2. After consolidation the student has to make just one single monthly payment to a single lender which saves him the trouble of writing multiple checks every month.

3. The monthly payments can be brought down to a level which is easier for the student to manage by extending the term of the loan.

When youre ready to get your consolidating student loan do a bit of research about the lenders and the consolidation programs offered by these lenders, and proceed only after you have inspected every aspect of the offer.

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