Student loan consolidation services
Student loan consolidation helps in combining several existing student or parent loans into one new loan from a single lender. This single loan will be used to pay off the balances on all the other loans from financial institutions or the federal government. The regular repayments will be to this one lender instead of two various lenders.
The student is thus saved the trouble of keeping track of his several monthly repayments on different accounts. Effectively student loan consolidation is a refinancing program that reduces your monthly payment, locks in the interest rate, simplifies the finances by creating one monthly payment, improves the credit rating, and provides flexible payment options. Student loan consolidation not only helps students lock in a lower interest rate it has various other incentive features. Even loans with overdue or unfulfilled repayments may still be considered for consolidation if a satisfactory repayment plan has been agreed with the bank or the creditor. Married couples can also consolidate their student loans to gather if they agree to repay the consolidation loan irrespective of how much each of them individually owed before the consolidation.
However, if they change their marital status in the future, that will not change their debt situation. Types of Student Loans Several types of loans are available to students. Broadly these can be grouped into federal student loans and private loans. Federally funded loans are administered initially through the US Department of Educations federal Student Aid programs and are the easiest to get consolidation services for. Stafford loans are the most common form of federal loans for students. Private student loans are administered by standard lending institutions. The most common ones are Citibank student loans and the Sallie Mae Signature student loans. Often the interest rates charged by them are higher than their federal counterparts.
Loans that can be consolidated:
• Federal Family Education Loan Program (FFELP)
• Stafford, PLUS, SLS and consolidation loans thereof
• Federal Direct Loan Program
• Stafford, PLUS and consolidation loans there of
• Federal Perkins Loan
• Federal Insurance Student Loan Debt
• Health Professions Student Loans, including loans for disadvantaged students
• Nursing Loan Program
• Health Education Assistance Loans
However, non-federal loans obtained through banks, universities or other private financial institutions will have to be consolidated separately. Effects of Student DebtStudent loans influence your credit and thus your future decisions too. Students who borrowed a substantial amount for college are the ones who are less likely to pursue higher education. Student loan debt exceeding 8% of his income can be seen negatively when credit assessment is done for future loans.
Advantages of Student Loan Consolidation:
• Helps centralize your loan repayments, your payments will be to one institution only.
• The repayment period is extended to between ten and thirty years depending on the total amount borrowed.
• The concerned bank or financial institution will give a phased repayment plan taking your current income into account so that the monthly payments can be met retaining a good credit
• There are no fees for consolidation
• The monthly repayment amount can be reduced by extending the repayment period
• After consolidation the interest rate will usually be lower than that on the existing loans before consolidation
• If you opt for an automatic debit plan, you can decrease the interest rate by a quarter point
• After thirty six months of on time payments, some lenders slash the applicable interest rate by a whole percentage point.
• There are no prepayment penalties.
Some disadvantages:
• Since the interest rate is fixed one cannot gain if there is a falling trend in interest rates
• Although monthly payments are lowered because the life of the loan is extended, you can end up paying considerably more in interest over the life of the longer loan.
• Once they are approved the consolidation loan cannot be undone.
This happens because the loans consolidated have been repaid in full to the respective creditors and have thus ceased to exist. Before ConsolidationBefore consolidation one must take inventory of all outstanding loans. The loans can be consolidated at a bank or credit union that is a member of the Federal family Education Loan Program. If the loans are not from the federal government or the direct-loan program but has been obtained from a private sector lender, this lender will have to be given the first right of refusal on the chance to consolidate your loans before shopping around. There are never any fees associated with consolidation, so if the lender requires you to pay an application you should refuse to do so.
Rules of Consolidation:
Most federal loans can be consolidated. Students can consolidate while still in school, during the six month grace period immediately following graduation or during the repayment period.
One should remember that the interest rates will be lower if you consolidate while you are still in school or during the grace period. In order to qualify while in school, the student will have to request early repayment status from the lender. This will ensure locking in the lower rate but will also wipe out the future grace period. However it is possible to defer payments by requesting an in-school deferment till after graduation.
Some other points of import:
• You can consolidate only once. It is not like refinancing a mortgage where you can keep locking in lower rates
• Lenders typically require a loan balance of at least $7,500 to consolidate Recent Changes. Since the late 1990s Stafford and PLUS loans have been using variable rates that are changed every 1 July, with the rates being based on the three month Treasury Bills yield at the end of May. However effective 1 July 2006 instead of variable rates the Stafford loans now carry fixed rates of 6.8% and PLUS loans 8.5%.
Conclusion: There is no doubt that student loan consolidation provides a unique opportunity to students to better their credit standing and simplify their debt management. However, before going for this it is essential that they understand specifically what they are getting into.
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