Payback time for student loans.
As June end approaches every year, most college graduates come
face to face with the harsh reality of paying back for their
student loans. Most of the loans student, for the first time
start paying attention to the borrowings they have made to complete
college education. With the realization that they must now begin
paying back for this student loans, the search for payback options
The tension lines on
the forehead become intense, when they take a look at the huge
outstanding balance and the short term of ten years within which
they have to pay the amount back. The problem gets further escalated
because the starting positions, in most professional fields,
after graduation dont have a good pay package. With the low
initial income, paying big monthly payments can completely stress
out the students, oftentimes keeping them away from concentrating
on their career.
At the time of graduation most of these loans
student do not even realize the kind of debt trap theyre
getting in to, they keep on borrowing without paying much attention
to the repayment aspect. However, when the graduation is about
to get over and they have to start making payments for their
borrowings in a few months time, the alarm bells start ringing
when they look at the amount of borrowings and the kind of monthly
payments that they have to make.
Anyways, there always
is a solution to every problem, and the solution for managing
heavy student loans begins with getting details about the amount
and the loan term from the source lender. The information related
to all Federal student aid that you have used can also be had
from the National Student Loans Data System which is the central
data base of the U.S. department of education.
For the convenience of the loans student,
the U.S. department of education has provisions for online access
to this data base on their website http://www.nslds.ed.gov.
To retrieve information from this website you will have to furnish
some personal information along with your social security number
and then key in the pin number that you have been given by the
Department of Education. And in case you have forgotten your
pin, the website has information on how to retrieve your pin
The normal repayment
term for any Federal student loan is ten years, on the other
hand there is a lot of variance in the payback periods for private
student loans but generally it is around twenty years. Federal
aid is usually not enough to take care of the total cost of
education and so many students have to get private loans. Also
private loans may be required because Federal student loans
have a limit on the amount of money that can be borrowed by
a student within a year.
With a big student loan
balance and a lower income package, most graduates start considering
the idea of consolidation of their student loans. There are
numerous questions that come to the mind of these graduates
about whether or not to go ahead with consolidation.
Most of these graduating
students are sent mails and circulars by lenders, informing
them about how they can lock in the interest rate with student
loan consolidation and at the same time stretch over their repayment
term from the usual term of ten years to as good as 30 years.
The stretching of the repayment term is completely dependent
upon the total amount of debts that the student has.
Their decision about
consolidation of student loans should ideally be made before
the end of the six month grace period which follows graduation,
because after this the interest rates offers may not be as interesting.
Every year the interest rates on Federal student loan consolidation
are changed on the first of July and keeping a check on the
predictions about the interest rate the students should decide
on whether to consolidate before June thirtieth on after the
first of July.
This July saw a major
increase in the interest rate for most of the Federal student
loans. The interest rate on Stafford loans went up to 6.54 percent
as against 4.75 percent for students who were in the grace period
or in deferment. And for those who were already in the repayment
period the rates jumped from 5.37 percent to 7.14 percent. The
rate of interest on consolidation of PLUS loans also went up
from 6.1 percent to 7.94 percent.
At the time of consolidation, the rate of interest is decided
on the basis of the weighted average of the different interest
rates that the student was paying
his difference student loans, and the resulting number is rounded
off to the nearest one eighth of a percent. Although this will
be a minor increase in the interest rate, still the students
benefit because they can lock in the interest rate and become
immune to fluctuations in the market interest rate.
Apart from the ability to lock in the fixed interest rate for
the entire term of the loan, the bigger advantage comes in the
form of a longer repayment term to get the most affordable monthly
payments. Although it becomes easier to make the monthly payments,
the student must give a thought to the total amount of cost
that he will have to pay over the loan term because by extending
the term of the loans student
he is also increasing the total amount of interest that has
to be paid over the loan.
The toughest element
of student loan consolidation is making a choice about the lender.
As far as the interest rate is concerned, it will be nearly
the same with all lenders because the same formula for calculating
interest rate is used by all of them. This means that the choice
is to be based on the loan features and the lenders attitude
and reputation. For instance there are lenders who offer special
incentives like reduction in the rate of interest for regular
payments or for direct debit facility. Some lenders may have
other types of incentives instead of the reduction in interest
rates such as cash rebates. There is no need for you to go ahead
with the lender who does not offer you any additional benefits
because the competition in the consolidation market is very
fierce and checking up with other lenders you will be definitely
be able to find a lot many attractive offers.
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