While finishing your college education leaves you with an elated sense of accomplishment, the reality of your new situation rapidly becomes apparent. At the same time that you will be looking for a job and pursuing the career for which youve worked and studied, you will also be faced with resolving the financial obligations that made your education possible. Regardless of your status as a new graduate, or as someone who has labored under the burden of student loans for years, loan consolidation can help you take control of your finances again while successfully discharging your debt.
Student Loan Consolidation
Immediately upon graduation, students with loans have a grace period of six months, which is an excellent time to consider putting your finances in order with a consolidation program that will give you one affordable monthly payment. That amount will also determine the length of time needed to fully discharge the loan. Obviously a higher interest rates means a higher payment, but a shorter life for the debt, just as a lower rate means a more affordable payment but a longer period to see the loan paid off. Each of these factors has to be weighed with your particular situation in mind to arrive at the right combination.
Since the majority of graduates have a combination of both federally funded and privately secured loans, the options for repayment vary. You cannot consolidate both kinds of loans in a single repayment program, but effective consolidation of each will still leave you with better interest rates and only two payments per month.
Federal Student Loan Consolidation
The Federal Family Education Loan Program (FFELP), a government sponsored loan consolidation program, is an option for students with Stafford, Perkins, and PLUS Loans. FFELP consolidation will extend the life of the single loan to a period of from 10 to 30 years at a fixed interest rate of one percent. This arrangements guarantees a set payment for the lifetime of the loan, which is fundamental in effective financial planning.
Private Student Loan Consolidation
When consolidating privately funded debt, the terms of the arrangement are totally up to the financial institution in question and are not regulated by the government in any way. The borrower has the option of researching multiple banks to find a rate and term best suited to his or her budget. It is not likely, however, that the interest will be as low as that offered via FFELP.
What Happens If I Default?
If you default on your federal or student loans, meaning you do not make your payments, you will seriously harm your credit rating and increase the amount of money you owe. Private lending institutions are limited in the ways they can be compensated for delinquent funds, but they can take the creditor to court to seek resolution of the debt.
The government can set up automatic deductions from a creditors paycheck, a process called garnishing wages, to recover delinquent loan payments. Additionally, they can restrict whatever government securities you currently or will receive, including Social Security benefits and IRS tax refunds.
If you meet the necessary criteria, you may be able to qualify for government debt forgiveness. Determining factors include voluntary medical work in eligible low-income communities and military service among others. The human resources department at your place of employment should be able to provide you will full information on these and other forgiveness venues.
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