Combining Student Loans

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Combining Student Loans

Students today have many options when it comes to financing their education. If they choose not to go to college on their own dime, then they can take out student loans. However, these student loan options aren’t ideal for everyone. For someone who wants to earn a degree while paying off their student loans at the same time, a private loan might be a good fit. In order to know if a private loan is right for you, then keep reading!

Private Loan Basics

A private loan is basically a type of unsecured debt. That means you don’t need collateral in exchange for borrowing money. Most banks won’t lend to borrowers who have bad credit, but a private lender might be willing to make an exception for you. You simply fill out an application and get papproved. Once approved, the lender will send you paperwork to sign and turn over any required documentation. Then, you repay the loan once you start earning income. You’ll pay back what you borrowed plus interest over a certain number of years. Depending on your credit score, interest rate, and repayment plan, it may be cheaper than taking out a traditional bank loan.

Student Loan Benefits

If you decide to take out a private loan instead of using federal student aid, here are some things you should consider:

No Income Verification Needed – Private lenders generally require less documentation than a bank does when approving a student loan. As long as you provide proof of employment (like W-2) and tax returns, you’re golden.

Lower Interest Rates – After getting papproved for a private student loan, you’re going to receive a lower interest rate than you would if you took out a student loan from the government.

Flexible Repayment Plans – A lot of people prefer prepaying a loan rather than repaying it in full each month. By prepaying the loan before it reaches its maturity date, you can save money on interest and still have enough to cover your tuition expenses.

There’s no doubt that private lending is a great way to finance your education. However, if you want to avoid student loan debt altogether, then you should think about applying for federal financial aid. Federal aid offers more flexibility for higher education students. You can apply for scholarships, grants, and work study programs to help offset the cost of your education.

Combining Student Loans

Interest Rates

Interest rates change over time, depending on what type of loan you have and how long you plan to take out loans. Interest rates are generally stated as a percentage of your monthly payment, meaning that if your interest rate is 6% per year, then each month you make payments, you’ll pay 6% extra (or $60) towards principal and interest.

Loan Term

Your loan term refers to how long you’re paying back your student loans. Most of the time, the longer you borrow money for, the lower your monthly payment will be. But don’t forget that longer loan terms mean you’ve got more years to repay your student debt!

Annual Percentage Rate (APR)

The annual percentage rate (APR) is a measure of how much interest borrowers are charged on their loans, in relation to the length of the loan period. APR varies by loan type; for example, federal Direct Subsidized/Unsubsidized Loans have an APR ranging from 2.6-8.0%, while private lenders offer a variety of loan types with varying APRs. As well, some private lenders may not report the APR to credit reporting bureaus, so you might think you’re getting a great deal but actually end up paying more than you thought.

Origination Fees and Processing Costs

Student loan origination fees vary based on lender and program. These fees cover costs associated with gathering application materials and processing paperwork, such as verification of income and employment history. On average, the origination fee is 0%-10% of the total amount borrowed. Processing Costs also range widely. In general, processing costs are included in monthly servicing charges, and can range anywhere from 1%-2% of the total balance owed.

Repayment Options

There are many repayment options available for student loan borrowers. If you select a fixed-rate option, you won’t face any additional interest charges once you graduate or leave school. However, the cost to maintain the low initial interest rate is significantly higher after the first three months of making payments. If you prefer to defer payments until you begin earning enough money, you can do so at no additional cost. Finally, refinancing your loans is possible but can involve complicated procedures and a lot of paperwork.

Payment History

Payments are due on the same date each month. To avoid late fees, be sure to make your scheduled payments before they fall due. You can also contact your lender directly if you miss a payment and ask them to reschedule it. Don’t hesitate to ask about flexible repayment options, either.

Loan Consolidation

Loan consolidation works best for people who have a good track record of repaying their student loans. It’s a way to consolidate all your existing loans into one new loan and lower your monthly payments. While consolidation can save you money in the short run, it comes with its own set of risks. For instance, even though you may get a lower interest rate, you could lose some of the deductions you currently receive, including tax refunds and certain government assistance programs. There’s also the risk that consolidating your loans could trigger a reevaluation of your FICO score, which could negatively affect your future lending opportunities.

Combining Student Loans

What happens if I don’t make my payments?

If you miss at least two monthly installment payments on any federal loan, including subsidized loans, then your loan may enter repayment forbearance. In forbearance, your loan gets temporarily frozen and won’t count toward repayment while you take action to pay back what you owe. Most companies allow borrowers to defer their payment for up to 90 days. If you’re still unable to repay your student debt, and you’ve exhausted all options, then you’ll be referred to a collection agency (a company that buys delinquent debts).

The first time they contact you about your debt, they’ll offer a payment plan that will last anywhere from 12-36 months. You’ll have to keep making payments until the plan ends. At that point, the collector will start charging interest again and try to collect the remaining balance. If your account isn’t paid off after five years, your loan could become due and payable.

To avoid being turned over to a collection agency, you’ll need to follow these steps:

Pay any past due amounts.

Make your scheduled payments.

Contact the lender or servicer immediately if your financial situation changes. Your lender may let you skip a payment or reduce the amount you owe. Get help ASAP if you’re having trouble paying.

How long does it take to clear student loan debt?

Once you get out of school, you’ll face a mountain of student loan bills. There’s no way around it. But don’t worry because it doesn’t have to be a lifetime sentence. Once you graduate and stop taking classes, your loans should go away. Before your loans are totally cleared though, you’ll have to deal with the following fees.

Late Payment Fees. These aren’t as steep as some people might think. Even if you’re late only once or twice, the fees can add up. So before you hit that big fat zero, it’s best to catch those fees early.

Loan Consolidation. If you have several loans, it’s smart to consolidate them using a low-cost private consolidation loan.

Income Based Repayment (IBR) Payments. If you qualify, you may be able to lower your monthly payments by making extra payments above your minimum payment. You’ll need to apply for IBR. It’s not automatic. As a borrower, you’ll have to request IBR and provide documentation proving that you earn below a certain income threshold.

Is bankruptcy a solution for me?

While it’s true that filing for Chapter 13 bankruptcy can wipe clean your outstanding debt, there is a hefty price tag attached. Typically, you’ll have to pay a fee of $600 per month for three years. That means you’d have to put down $2,400 for the privilege of wiping your slate clean. Plus, you’ll have to work out something with your creditors to avoid hitting them up for more money.

Combining Student Loans

I am currently in school at University of Phoenix, pursuing my degree in Business Management. I have been working to pay off some student loans since August 2012. It’s not quite that simple though. I work full time in addition to going to school. My employer offers me no help whatsoever towards paying off student loans. I feel horrible about asking them for assistance because they do not offer any perks to employees who take out student loan payments and they would rather me save money then spend money on things they don’t offer. I am doing everything possible to pay back my loans and make sure I never get a credit card again. It’s hard enough to find jobs without having to think about how much interest you will be charged if you use a credit card. I am trying to set aside $50 per month towards my loans and I am only getting about half of what I need each month. I cannot afford to live paycheck to paycheck either. If anyone could give me advice on how I can combine student loans, I would greatly appreciate it. Thanks!

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