Student loan consolidation is an act of refinancing multiple federal and private student loans into a single student loan – one that has new, more favorable repayment terms and a lower interest rate. Consequently, students save money and gain the convenience of paying only one bill, instead of multiple ones.
Tip: Feeling uncomfortable managing your student loans? Go to your school’s Financial Aid Office and talk to a Financial Aid Counselor.
Federal Loan Consolidation:
Federal loans provide students with a six month grace period, which is the additional period of time that a lender allows to make payment on a debt without penalty. While it is vital to start repaying loans after the grace period has ended, interest rates are lower during the grace period, and therefore, it is recommended to consolidate during the six-month period after graduation.
Federal loans that can be consolidated:
- Education Consolidation Loan
- PLUS Parent Loan
- Perkins Student Loan
- Stafford Loan for Student
For more info about federal loan consolidation please visit GovLoans.gov – Education Loans section.
Private Loan Consolidation and Repayment:
Private lending companies offer private loan consolidation under various loan rates and terms. As mentioned above, companies will combine all your bills into one, and will likely quote you a lower monthly rate (if not, shop around). Note: think twice before combining federal and private loans into one package. Federal loans will usually have a better interest rate; therefore, keep these two types of loans separate.
If private loan consolidation is not feasible and you have troubles making timely payments, consider graduated repayment and income-sensitive repayment options.
- Graduated repayment – your monthly bill will be lower at the beginning and grow towards the end of the loan term. The logic behind graduated repayment is that you will be making more money as you progress in your career.
- Income-sensitive repayment – your monthly bill will be based on a percentage of your monthly income and student loan debt, as long as your payment covers interest that accrues every month. Note: this option might be the most expensive in the long run, as you won’t be repaying your loans principle.
Tips for more rapid debt repayment:
- Enroll in direct debit, and never worry about late fees. Make sure your bank account always has sufficient funds.
- Change due date in order to postpone payment. This way, your student loan consolidation [http://www.consolidationanswers.com] bill will be due after you receive your paycheck.
- Use deferment or forbearance as your last resort.
- Borrow from friends or family. TabTally.com will keep track of payments, and it is free to use.
