Drowning in debt lending for education: the consolidation loan can save you?
This is the first day of the month and you have received a handful of bills for many different student loans that helped pay graduation: Perkins, subsidized and unsubsidized FFEL or Direct Stafford and PLUS. Your salary has not reached the six figure income that you expected the moment. Each month, you watch your hard earned money evaporate in education loan repayments while you live in an apartment cramped and driving a car older than you.
You've heard about consolidation loans and the idea of making a small payment to a lender rings like a dream compared to your current nightmare to feed a seemingly endless stream of money to a number of different lenders. No contest – Where do you register?
Rein yourself in a moment. Consolidation may be the perfect solution to your problems financial, and again it can not be. So, before jumping into the process of consolidation, here are some things you might considered.
Are lenders AXING consolidation loans?
In an effort to address some inequalities the federal student aid, Congress recently passed the College Cost Reduction and Access Act of 2007 which, inter alia, reductions in lender subsidies that have historically been put in place to encourage lenders to participate in federal programs Loans for education. This bill, together with the subprime mortgage crisis in recent years, a lenders look more education about whether loans continue to be profitable for them.
Higher education leaders expect that lenders may reduce the incentives and Stafford and PLUS loan discounts already offered to attract borrowers – and eliminate completely for consolidation loans. consolidation loans, with tighter profit margins of all student loans, perhaps on the block for some, while other lenders may increase the minimum payment which qualifies a borrower for a consolidation loan.
Same if lenders back on the work of consolidation loan, consolidation is always available through the consolidation program Federal Direct Loan, but the government does not offer incentives and discounts that lenders have long used to attract borrowers.
Interest Rates Coming Down?
From Stafford Loan and PLUS interest rate variable, which are based on a formula which includes the interest rate bill the most recent T-91 days, all changes on July 1, rates should drop significantly on July 1, 2008. This fall will make the rate of education variable rate loan very attractive interest. Because the interest rate for a consolidation loan is calculated using a weighted average of all interest rate for all loans that you include in the consolidation You may want to wait until July 1 to take a more informed decision.
Consolidation: Thumbs Up or Down?
To consolidate or not to consolidate: This is the question. But there is no easy answer.
Consolidation may a good idea if:
• You have a variable interest rate and would rather a fixed rate. This may be a good idea, but you can wait and he believes that if interest rates begin to rise again. And what happens if interest rates Variable stay down or fall below your fixed rate?
• You have a variety of loans and lenders and would have a single lender. One problem – you may have to "pay" for the convenience of accepting a higher interest rate on some of your loans.
• You need more flexible repayment options. The repayment options available through consolidation are:
Standard – fixed monthly payments.
Graduate – begin payments low and increase every two years.
Extended – for amounts above $ 30,000, either fixed or diploma option.
In according to income – depending on annual income and total debt loans, with an adjustment payment each year, changes in income. The FFEL program proportionate refund to offering significant income, which bases the monthly payment on a percentage of income.
Although the Stafford loan programs offer options Flexible repayment, the Perkins Loan Program are not currently. Note: An option for repayment based on income will be available for FFEL and Direct Stafford, Perkins, Grad PLUS and Federal Consolidation (less undergraduate PLUS) borrowers on July 1, 2009.
• You must feel comfortable on your monthly payments. Beware of this option. A decrease of payment generally means a longer repayment period and pay more interest over time.
Consolidation may not be a good idea if:
• Any loans that you intend to include the cancellation or surrender of options that can be lost if you consolidate.
Loan Program Perkins, for example, has an option to cancel if you teach in certain public service professions school or in certain areas or designated low-income schools.
Portions of a Stafford loan may be eligible for cancellation if you teach full time for five consecutive years in a school with low income. (In some cases, this option may also be available for consolidation loans.)
• Your current lender offers discounts (for example, reducing your annual interest rate) for successive periods of time payments. You lose this option if you consolidate and, as mentioned above, lenders may be phasing out incentives for consolidation loans.
• You consolidate during your grace period (s). The rest of your grace period is lost.
• You have already significantly reduced the amount you owe. Because that consolidation generally extends your repayment period, often with interest rates have increased, ultimately you can end up paying more.
Research and Conquer
Unfortunately, the answer to the consolidation or not is good for you is … "It depends". To find out, collect information on what you have federal loans (Perkins, FFEL, PLUS and Direct Loan programs) accessing the National Student Loan Data System (nslds.ed.gov). Gather information on private educational loans that you directly from your lender (s). Take the loan information and find a consolidation loan calculator online to help you determine how your loan repayments can change through consolidation.
Then ask yourself the following questions:
• Am I willing pay higher interest or extend my repayment period and pay more interest over time?
• Will I lose all options for cancellation of loans or incentives so that I am eligible?
• Can I pay my current payments without consolidating?
• Would consolidation actually make my payments much more affordable?
• Is this payment, the "low business benefit offset" pay more for more downside to consolidation?
You can see that the decision whether to consolidate is not black and white. This an individual decision – it may work for some and not others. Because there are any long-term consolidation, do your research and weigh the pros and cons carefully. When all the evidence is, you should be able to decide whether or not a consolidation loan is the solution for you.
About the Author
Kelli Smith is the senior editor for www.Edu411.org. Edu411.org is a career education directory for finding colleges and universities, training schools, and technical institutes.
