When the elation of graduating from college wears off, reality sets in. As new graduates compete in a job market where high unemployment has been a factor since 2009, they are still faced with paying off their student loans. It’s very easy, in that transitional period, to get into financial trouble before you’ve even started your new professional life. That’s why consolidating your student loans to manage your finances more responsibly is something you should consider before the numbers begin to get alarming.
Student Loan Consolidation
You actually have about a six-month grace period after graduation before your loan payments begin. This is the ideal time to consider loan consolidation to arrive at a monthly payment you can afford. Use our student loan repayment calculator to help you determine the payment rate versus time needed to resolve the debt. Remember that a higher interest rate will lead to a higher monthly payment, but it will also shorten the life of the loan. Conversely, a lower interest rate brings down your monthly payments, but it will also prolong the life of the loan.
Most students have a combination of both federal and privately funded loans. Because of the nature of the repayment terms and options, you cannot consolidate both types into one payment. You can, however, consolidate each one separately, leaving you with a maximum of two monthly payments.
Federal Direct Student Loan Consolidation
The Federal Family Education Loan Program, more commonly known as FFELP, is a government sponsored organization created for the sole purpose of loan consolidation. Government loans such as the U.S. Department of Education’s Direct Loan Program, Stafford Loans, Perkins Loans, and PLUS Loans are all eligible for consolidation. (President Barak Obama has proposed changes to the loan consolidation process that would lower interest rates and enhance the consolidation options by 2014.)
When you use FFELP to consolidate a student loan, the life of the loan is considerably longer than if you were to pay off each loan individually. This means that you will have anywhere between 10 and 30 years to resolve your debt. Another advantage to consolidating is that your interest rate will not only be lower, but also fixed at one percent. The interest will not change for the entire duration of the loan period and your payments will also stay the same.
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Private Student Loan Consolidation
Private student loan consolidation is similar to other loan consolidation programs in that it allows you to combine all your private loans into one payment, but the terms of the consolidation may differ due to the lending institution in question. Those terms are not regulated by the government in any way, so there is no universal agreement. The borrower has more leeway with these loans, because he or she can research various banks and private loan institutions in order to decide which is most suitable for his or her budget.
Consolidation of a Private Student Loan
What you’ll need to apply:
- Name of your alma mater
- Current amount of private student loan debt
- Name, address, phone number and email
- Social security number
- Drivers license number
Click here to: Apply for Consolidation of a Private Student Loan!
What Happens If I Default?
When you miss payments on your student loan, your loan goes into default status. Defaulting on federal and private student loans will damage your credit rating and substantially increase your total debt. Private lending institutions are limited in the ways they can be compensated for delinquent funds. Aside from damage to your credit report, banks can take you to court to get their money. Currently, neither federal nor private student loans are dischargeable in bankruptcy. Several options are available to the government should you default on your loan. They can garnish your paychecks, meaning that they will make automatic deductions from your weekly pay. They can also restrict whatever government securities you currently or will receive, including social security benefits and IRS tax refunds.
If you meet the criteria necessary, you may be able to qualify for debt forgiveness from the government. Determining factors include military duty, and volunteer or medical work in eligible communities. If you think you may qualify, contact the human resources department at your place of employment for more information.