Consolidate Government Student Loans

Consolidation

As college costs continue to rise, many students find themselves struggling to pay for school. Many families turn to student loans as a way to help their kids get a higher education without having to work their entire lives. If someone’s family income doesn’t cover the cost of tuition at an expensive university, they may need to take out a student loan.

Student loans are offered by commercial banks and private lenders, and usually have competitive interest rates. By consolidating multiple smaller loans into one larger loan, borrowers can potentially save money each month. However, consolidation comes with its own set of risks, including possible rate hikes and increased repayment terms. So before taking advantage of student-loan consolidation, students should first weigh the benefits against the potential downsides.

How to consolidate government student loans

The best place for students to start looking to consolidate their federal student loans is with their lender. Most lenders offer these loans directly to borrowers, while some require the borrower to go through a third party company. If you’re working with a lender who isn’t offering direct loans, check with them to see if they can connect you to a broker who does. In order to qualify for consolidation, you’ll need to meet certain criteria — for example, your monthly payments must not exceed 10% of your discretionary income (which is defined as how much you make over $50,000 per year) and your credit score needs to be above 700. Once you’ve met those requirements, you’ll then need to compare your current payment options to what you’d expect after consolidating your loans. Your lender will provide you with a list of different plans, along with estimated savings.

After comparing your current options to what you could expect after consolidation, you can choose the plan that makes the most sense for you. You can also ask your lender questions about any particular plan they offer, since knowing all of the details ahead of time can help you decide whether it’s right for you. After deciding on a plan, contact your lender again to finalize the paperwork for submitting the application. Remember, if you don’t submit the paperwork on time, you could lose your chance to consolidate altogether.

What happens if I miss a payment?

If you miss a payment on your consolidated loans, the original lender may increase your interest rate, charge additional fees, or even report the missed payment to various institutions that monitor your financial behavior. While missing a single payment won’t necessarily cause problems for your credit score, missing several consecutive payments could negatively affect your credit rating.

So before you sign off on any loan agreement, make sure you understand exactly what penalties you might face if you default on your payments. Be sure to keep track of your payment schedule, and stay informed about interest rates throughout the term of your loan. If you do end up facing trouble making payments, consider talking to a lawyer who specializes in student loans.

Consolidate Government Student Loans

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If you want to do it yourself they take out about a quarter of your income over 10 years, while getting a private lender takes only three months.

I cover both federal and private loan consolidation including monthly payments, direct debit, and how it affects your credit score. You may ask why should we combine these types of loans since they are all government subsidized? I explain what our country’s budgetary problems are in this video. Taxpayers are actually paying off our national debt.

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Consolidate Government Student Loans

Consolidate student loans

There are many options to consolidate government student loans to make them easier to repay. At one point in time (2008), student loan debt totaled $906 billion. That number is now over $1 trillion and climbing. If you have federal student loans, you may qualify to refinance your debt, depending on your situation. You can often refinance your student loans through the Federal Family Education Loan Program (FFELP). Once you consolidate your student loans, you’ll get a single monthly payment instead of several smaller payments each month. There are two ways to consolidate private student loans. One is called income-based repayment, where you pay only what you can afford based on your income, while the second option is called fixed interest rate, which keeps your interest rate steady throughout repayment.

Pay off student loans early

One way to reduce your total amount owed is to start repaying your student loans before they reach their full term. This can help you avoid paying thousands of dollars extra in interest charges. Remember, the earlier you start making payments, the less interest you’ll pay over the years. Start making regular payments as soon as possible after graduation, and if you have any money left over, use it to contribute towards your down payment on a home.

Consider other financial options

If you don’t need a huge cash cushion to buy a house, consider other alternatives. A home equity line of credit lets you borrow money against the value of your home. In addition to lowering your monthly housing costs, this could give you some breathing room when it comes to paying back your student loans. Another option is a personal loan. These are short-term loans offered at competitive rates, and because they’re unsecured, you won’t be asked to put down a security deposit.

Avoid defaulting on student loans

If you do decide to file bankruptcy, it doesn’t mean you have to miss out on repaying your student loans. Contact your school’s office and talk with someone about how you can work out a payment plan. While no one wants to think about defaulting on student loans, it can allow you to keep your job, avoid foreclosure on your home, and continue your education without being saddled with unmanageable debt.

Get help from a nonprofit lender

A good place to find free counseling or advice on refinancing your student loans is the National Foundation for Credit Counseling at 1-800-388-2227. Visit nfcc.org for more information.

Consolidate Government Student Loans

Consolidation

The first step in consolidating student loans is contacting the lender. You’ll need to make sure you’re applying at the proper time, and that you meet their requirements. Once you’ve done all of this, and if you qualify, you can expect to pay between 1% and 5% off the principal balance of your loan. There could be fees involved, however, so do your research before proceeding.

Pay More Than Your Minimum Payment

You should always try to pay more than your minimum payment each month. While paying extra may not seem like much now, it will help you dig yourself out of debt faster. Ideally, you’d like to aim to pay more than 25%, but don’t worry about exact numbers. Just focus on making sure you’re meeting your monthly obligations without sacrificing any money.

Don’t Fall Behind On Payments

If you fall behind on payments, your interest rate will increase. Make sure you catch up on any missed payments as soon as possible. If you can, pay them early to avoid late fees. Late fees will add additional charges to your account, increasing the amount owed even further.

Consider A Loan That Doesn’t Have Annual Interest Rate Increases

There are some types of loans that won’t have annual interest rate increases. These loans tend to also be less expensive options, so look into them if you want to save money over the long run. However, they aren’t ideal if you’re looking to consolidate student loans right away. Be careful, though; these types of loans often require certain credit scores and/or income levels.

Take Advantage Of Debt Management Programs

Debt management programs (DMPs) allow consumers to set up automatic monthly payments. This means you receive a check each month based on what’s left on your loan after your payment is applied. DMPs are great for people who struggle with finances and can get overwhelmed with paperwork every month. Plus, they can help reduce interest rates and lower monthly payments.

Look Into Refinancing

Refinancing your current student loans can result in lower payments and longer repayment terms. This doesn’t mean you’ll only have to repay your loan once, though. Instead, you might have to repay it several times over a period of years. If you’re planning to refinance, make sure you compare different companies and loan products to find the best deal. Also be aware of hidden costs associated with refinancing.

Sources

Consolidate Government Student Loans

Consolidation Loan

A consolidation loan is a type of financial aid that combines many student loans into one larger loan. This helps students who have many loans spread out over various institutions manage the payments and balances. If you have student loans at several different institutions, a consolidated loan can be helpful.

Income Based Repayment (IBR) Plan

The income-based repayment plan is offered by most private lenders. Students pay back their loans based on how much they make, not just what their monthly payment would be if they paid off the entire principal amount of their debt in 10 years. You may receive forgiveness after 10 years, depending on your earnings.

Income Based Deferment

If you are enrolled full time at school and meet certain requirements, you may qualify for deferments. A deferment is when you do not have to begin making payments on your student loans until after the grace period has ended. In order to get deferred payments, you should keep good grades and try to reduce your costs as much as possible.

Pay As You Earn (PAYE) Plan

The pay-as-you-earn plan offers flexible, affordable payments while you’re still in school. Depending on your income and family size, you might even be able to consolidate your federal Stafford loan into one lower interest rate. After graduation, pay-as-you earn can help ease the burden of paying off student loans.

Public Service Loan Forgiveness Program (PSLFP)

This program was created in 2007 to encourage people to enter public service careers. Under the PSLFP, qualified borrowers may have their remaining student loan balance forgiven after 120 months of payments under any income-driven plan. There are restrictions on student loans taken out after October 1st, 2006, but those loans may be included in the program. Borrowers must work full-time for at least two years after leaving college without missing payments, and then continue working full-time for an additional five years.

Total Debt Free

Total Debt Free is a debt management company that helps consumers manage their finances. It offers a variety of programs including flexible spending accounts and 401k plans.

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