Consolidate Default Student Loans

6 min read

Consolidating student loans seems like a good idea at first, but it doesn’t always pan out that way. If you consolidate, you have to pay back a lot more than if you just paid off the loan on time. Plus, the interest rate you get will probably not be any lower than what you’re currently paying.

If you don’t want to pay off your student loans right away, try consolidating them instead. Consolidating means you’ll pay less over time, and you won’t have to pay much higher interest rates either. You can even set up payments ahead of time, making sure you know exactly how much money you need to make each month.

Here’s how to consolidate student loans:

Start saving regularly

You should save 20% of your income for retirement. That means you’ll need to start putting aside 10% of each paycheck towards your student loans.

Take advantage of low-interest programs

There are many different kinds of consolidation programs out there. These range from fixed-rate plans to variable-rate plans. Find the best plan for you by researching these options.

Shop around

When you’re looking at your financing options, check out various companies’ terms and conditions. You may find that some lenders offer better deals than others. However, remember that consolidation usually costs more upfront, so shop around before settling on one company.

Make regular payments

Most student loan providers allow you to choose to pay your monthly installments once a month, twice a month, or quarterly.

Remember that consolidating doesn’t mean you’ll never have to pay back your student loans. You might end up having to pay back more than you originally thought. Be prepared for changes in your financial situation, including job loss or unexpected medical expenses. Remember that student loans aren’t dischargeable in bankruptcy.

Consolidate Default Student Loans

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Consolidating student loans into a single loan

If your interest rates have been steadily increasing since you got your first student loan, then chances are good that you should consolidate your student loans into a single payment. A consolidated loan means that instead of making multiple payments each month, you make only one monthly payment per year. In fact, many lenders offer consolidation at no cost. Also, the terms of your current loans may be extended if you agree to a longer repayment period, meaning you could save money over time. While consolidating your student loans may seem like a great idea, keep in mind that doing so will lower your credit score and affect your future borrowing power. If you currently pay $400 down on your student loans and have a $20,000 balance, consolidating those two debts into a single loan would mean paying $600 a month until they’re paid off with $500 remaining after 12 months. Your debt-to-income ratio would increase by 25 percent, putting you in a worse financial position than before. You would still owe $20,000, but now you’d be able to afford less than you did before and you’d likely find yourself in default again.

Refinancing student loans

A popular alternative to consolidating your student loans is refinancing them. This involves taking out new loans to pay off older ones. Refinancing your loans may help you avoid having to pay high interest rates, but you’ll have to pay back the entire amount of your old loans plus additional fees. However, refinancing can be helpful if you want to take advantage of low interest rates, especially if you can get a 0% APR on the total amount borrowed. Before refinancing, make sure you know exactly how much you need to refinance and what your new interest rate will be. It’s also worth checking whether you qualify for any government programs that might be offering zero percent interest loans.

Repaying student loans early

Another option for avoiding higher interest rates is repaying your loans earlier than planned. If you’ve already started making payments on your loans and can’t afford to make any more, consider returning some of the money you’ve already contributed to your loans and applying it toward the principal balance of your loans. Doing so won’t necessarily reduce your monthly payments, but it will extend the length of time you repay your loans. You could also ask your lender to suspend your payments for a certain number of months while you work and save extra money to start making payments again later.

Paying off student loans with tax refunds

The IRS offers special rules for students who have tax refunds to use toward their student loans. Each parent gets a $2,000 (or $4,000 if both parents file jointly) refund check each year from the IRS. Parents can apply these funds toward the total balance owed on their child’s federal student loans. The IRS does not allow the same treatment for private student loans, however. Instead, students should use their own tax refund to pay down outstanding balances. Students can apply their tax refund to either their federal or private student loans.

Using your savings to pay off loans

You don’t always have to turn to student loans to finance school. Many schools offer scholarships for incoming freshmen that provide a lump sum of cash to cover tuition costs. These grants aren’t often enough to completely fund your education, though, so you’ll probably need to supplement them with student loans. If you’ve saved up some money to contribute to college expenses, consider using these funds to pay down your student loans. There’s nothing wrong with taking out student loans to go to college — just make sure you borrow wisely and pay off your loans responsibly.

Consolidate Default Student Loans

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Consolidate Default Student Loans

Consolidating student loans

If you have defaulted on your student loan payments, then the first thing that you should do is consolidate them. You can find out how much money you could save by consolidating your loans at www.studentaid.gov/consolidation. 2. Paying back student loans

You should start making monthly payments right away, regardless if you have any interest or not. Even though you may not owe any interest on a particular loan now, over time that number will add up. Also try to never miss a payment–that’s what got you to where you are today. I know that may seem daunting at first especially if you’ve been late before, but trust me, it gets easier once you start practicing good financial habits.

Make sure to get enough sleep

Sleep deprivation can affect your cognitive abilities (memory, focus, etc) and it can negatively affect your academic performance. Students who go to bed later than 10pm are less likely to perform well in school the following day. So make sure you’re getting at least 8 hours of sleep each night. 4. Find tutors

Tutoring services can be extremely helpful to students. There are many reputable organizations online that offer free tutoring sessions. Try to set aside 15 minutes per week to work on homework and study skills. This will increase your learning speed and lead you towards graduation. 5. Budget wisely

Budgeting is something that everyone struggles with, but budgeting responsibly can help you achieve financial independence. Here are a few tips on how to budget effectively:

Set a fixed amount you want to spend each month;

Do not allow yourself to use credit cards unless absolutely necessary;

Be aware of your expenses and cut down on things that aren’t necessarily using necessities;

Save more, it’s fun!

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