Consolidating student loan
Consolidate their student loans to end those sleepless nights.
The biggest nightmare for a student is the consolidation student loan hanging on his head and with the recent increase of 1.93 percent points in the interest rate for student loans the situation may seem all the more hostile.
Types of student loans.
Before we go on to understand how consolidation student loan can help in such a situation, let.s take a look at the different types of loans.
*The Federal Perkins loan: this type of loan is normally arranged by the financial aid office of the student.s college. This loan is more of a need based loan and accordingly the financial aid office of the university will determine with students will qualify for the loan and how much will they receive. With the availability of funds being very limited with the universities the loans are distributed on an extremely selective basis.
* The Federal Stafford loans: this type of loan is more common with the majority of the college going students as it is commonly available for both under graduate and graduate level education. For some students the Stanford loan may be subsidized in the sense that the Federal government will pay for the accrued interest while the student is still in school as also during the grace period which follows graduation.
* Private education loans: there are several of these available which are offered by a variety of private lenders. Most of the banks and financial institutions have the facility of extending private student loans to supplement the other types of financial aids which may not be sufficient to cover up the entire cost of education.
Consolidating Student Loans.
Having understood the different types of loans we will now concentrate on the more significant issue which is paying off for these loans. If you.ve been thinking along the lines of dodging your bills then don.t even think so because it.s not going to work for you. When the students don.t pay back their loans the credit ratings are bound to tumble. Apart from this the IRS can impose penalties and in certain cases the students may have to suffer garnishment of wages if monthly payments are not made on time. And if you.re thinking along the lines of declaring bankruptcy it.s not going to help again for the reason that student loans are granted immunity against bankruptcy. It may seem quite intimidating to have to pay back for all the educational loans but then there are clever ways out which can help you manage things better and without having to take the wrong approach.
So when you.re facing difficulties paying back for your student loans the answer lies in getting your consolidation student loan to enjoy a multiple benefits of consolidation.
Consolidation is basically a process in which a student gets his one or more loans refinanced. The outstanding amount remains the same but a new loan is originated after all the loans have been combined and this loan comes with a new term and a new lower fixed interest rate. Normally the student loans are for a term of ten years and by consolidation this term can be extended to bring down the monthly payments to a more affordable level. Depending on various factors and the amount of loan the term can normally be extended from twelve to 30 years.
However, the students must consider the fact that by extending the term of the loan he will actually be paying an increase the amount of interest over the principal. And if it is possible for the student he can always make payments which are above the minimum payment for each month to cut down the repayment period as there are no prepayment penalties on consolidated student loans.
For the students who are not through with their graduation yet there is a new addition this year, which allows them to consolidate their loans even before they graduate or while they are still in school. In case the student takes up more student loans then these loans can be consolidated either separately so as to continue with the older consolidation at a lower interest rate or the consolidation student loan can be done as a part of the blended package. For those people who have just graduated and are still in the six months grace period an extra half of one percent can be cut down in the consolidation rate. Even though the student consolidates during the grace period it is also possible that he may still be able to retain the entire grace period provided the lender agrees to disburse the loan towards the end of the grace period. If this can be done the student is always at an advantage of locking in the current low rate of interest while still enjoying the grace period.
Most of the Federal student loans can easily be consolidated, while private loans which do not have a Federal guarantee may be difficult to consolidate.
Gains from consolidation:
The major benefit that arises out of consolidation is the ability to lock in the low fixed interest rate for the entire term of the loan. However getting the lowest rate of interest may not be true in all cases. The rate of interest will also depend on the rates of interest on the original loans. Most of the lenders websites have the facility of online calculators using which the student can easily find out what will be the new applicable rate of interest on the consolidated loan. And with some lenders the application for consolidation can also be made on line.
The other benefits of consolidation is that the students will be liable to pay back just one single consolidated loan and accordingly will have only one monthly payments to make each month. Also you need to remember that there are no fees attached to consolidation of student loans.
The other added advantages are that some lenders may reduce the rate of interest if the student continues to make timely payments for a period of twelve to 24 months; if the student signs in for an automatic debit of his monthly payments from a savings account he may be given a further discount on the rate of interest.
Lastly, there is a lot of information available on the internet which can be very helpful for the student. With the use of certain online calculators they can find out what will be the applicable rate of interest after consolidation along with what kind of monthly payments will follow.
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