Government Student Loans Consolidation

Consolidating student loans can be tricky. But if you’ve got them, you’re probably wondering if it’s worth paying off some of the debt or not. And, you may want to look at consolidating while interest rates are low (which they have been recently), since that could make sense financially. However, while paying less interest over time can make sense, there are reasons consolidation might not be the right move for you. Here are six things to know about federal student loan consolidation options and what else you should consider before deciding whether or not to consolidate.

What are my options?

Student loan consolidation programs are offered by private companies — called private lenders — that work directly with the U.S. Department of Education. There are two types: income-based repayment plans and payment plan.

Income-Based Repayment Plan

Your monthly payments would be fixed until you repay your loan in full (usually 10 years). You’d still pay the same amount each month, no matter how much money you owe. Then, after you finish repaying your loan, you’d pay only the interest on your remaining balance. Your monthly payment wouldn’t change.

Payment Plan

You’d pay back your loan based on a set schedule. The total amount you pay would depend on the number of months you take to pay off your loan, rather than the size of your outstanding balance.

When should I consider consolidating?

If you expect that your income will increase substantially after graduation, then it makes financial sense to consolidate now. As long as your income increases, you’ll continue to pay interest on your existing loan balances, even though you won’t accrue any additional loan debt. If you don’t think you’ll earn enough to cover your loan payments after graduation, then it’s best to put those funds toward something else.

How do I decide?

First, calculate your net income after taxes, and compare that to the estimated average cost of a private education. You can find both online using tools like PayScale.com. If your total annual income is greater than the expected average cost of tuition, an income-based repayment plan could save you thousands of dollars over the course of your lifetime.

Second, consider how many years you’ll need to go without making a single payment. Underpayment penalties kick in after three missed payments. That means paying $10 per day for three days equals a penalty of $30. So, if you miss three payments, you’ll owe $90 in late fees.

Finally, consider your current student loan situation. Are you currently eligible for an income-based repayment program? Will you be able to afford a private education if you consolidate? Should you be looking toward public service jobs instead? These are just questions to ask yourself as you weigh your options.

Government Student Loans Consolidation

Student loans are often the biggest expense a person incurs while attending college. A student loan consolidation program may help save money on interest rates and fees. Many lenders offer these programs. By consolidating multiple loans under one, the borrower can pay off their debt faster than if they had paid the debts separately.

Consolidating a student loan means combining different types of student loan debt, such as federal financial aid (FFA) debt, private education loans, and even some credit card debt. To qualify for a student loan consolidation program, borrowers need only meet income requirements and have good payment history. In addition, they should not have outstanding balances on any other federal loans and those loans cannot be consolidated with the FFA debt. If they do have other loans, those could still be consolidated, but they would first go before the existing FFA loan.

Student loan consolidation programs can be offered directly by the lender, or offered through third-party companies. They can vary in terms of how much they cost, whether they guarantee fixed-rate payments or allow repayment flexibility and what happens after the loan is consolidated. One thing they share is that they lower monthly payments and lead to savings on interest costs over time.

For example, say I owe $25,000 in student loans, each at 5% interest, compounded annually. If I consolidate them into one 30 year loan, my monthly payment would drop to about $200 per month, saving me approximately $800 in interest payments. That’s $8,333 saved over the life of the loan.

If I were to simply make extra payments, then I’d pay down that amount, and would end up paying the same $8,333. But, if I take out the loan consolidation service, I’m able to start making smaller payments, reducing both my total balance and the interest I’ll have to pay.

While many people think that student loans don’t affect their credit score, most lenders report student loan activity to three major credit bureaus: Experian, Equifax, and TransUnion. Depending on the loan consolidation company, they may provide information on where the lender reports the loan activity to credit bureaus.

Lenders who provide student loan consolidation services are typically willing to negotiate the terms of the original loans. This includes extending the length of the loan and lowering the interest rate, among others. However, they’re not always able to renegotiate the terms of the underlying loans.

The best way to compare the options is to contact several companies and ask about their policies. Once you’ve narrowed down the companies, read their contracts carefully, including any fees you may incur. Also consider whether the company uses automatic renewal to automatically charge your account for future payments.

If you’re looking to get a loan based on your bad credit history, student loan consolidation might not work well for you. Most companies won’t accept credit histories showing late payments and defaulted debts.

Even though I’d recommend using a student loan consolidation service, you might want to consider other options as well. You could consider refinancing your existing loans, although doing so can increase the amount you’ll repay. Or, you could try to reduce your interest rate by applying for a Federal Family Education Loan (FEL) instead of a Stafford loan.

There are two types of FELs: subsidized and unsubsidized. Both give borrowers access to funds at low interest rates, but students on unsubsidized loans must begin repaying their loans once they graduate school. Students on subsidized loans never have to repay the principal until six years after leaving school, regardless of when they graduated.

Another option would be to use a home equity line of credit, which lets you draw cash from your home’s value instead of borrowing against your credit.

Some people choose to refinance their existing student loans. There are pros and cons to doing so, depending on how old your loans are and whether you’re eligible for forgiveness programs. Generally, it takes about 2 months for your old loans to become eligible for forgiveness.

Government Student Loans Consolidation

How do I consolidate my student loans?

Student loan consolidation is a great way for students to save money over time while paying off their debt. A lot of people think that they should only apply if they need to pay off their entire balance right away. But, consolidating your loans may not make sense for everyone depending on what type of loan you have. Some types of loans allow you to defer payments and others require you to pay back your loans in full each month. If you don’t want to start repaying your loans immediately, then you may benefit from consolidating.

Consolidating your student loans means combining several different types of federal and private student loans into a single payment plan. In many cases, consolidating your loans will lower the interest rates and monthly payments associated with your loans. You’ll often get a break on your interest rate after three years and lower monthly payments after five years. In addition, some lenders offer rewards programs that reward you for making your payments on-time. So, when choosing between different repayment options, consider the pros and cons of each option and choose the best option for you.

What happens if I default on my loans?

Defaulting on your Federal student loans puts you at risk of getting sued or having your wages garnished. Even though you have the opportunity to negotiate with your lender about how much you owe and how long you’ve been late on your payments, if you default on your loans, you could face court orders to repay the money owed with no chance of cancelling out the amount due. Since you won’t be able to avoid repaying even delinquent amounts, defaulting makes it difficult to qualify for future loans. Defaulting is also risky for your credit report, and that affects your ability to borrow money in the future.

Can I still pay off my loans without consolidating them?

Yes! There’s nothing stopping you from paying off your loans yourself. Consolidating your loans lowers the total amount you owe, and since you’re still making regular payments, you’ll still reduce your debt faster than if you borrowed less money. Plus, once you consolidate your loans, it’s easier to manage your finances and stay organized throughout the year. Check out our tips below to help keep track of your payments and ensure you hit your goals.

Do I have to consolidate all my loans at once?

No, you don’t have to consolidate your loans all at once. You can take it slow and work on consolidating your loans one at a time. That way, you can find out what works best for you and your financial situation. Most borrowers who consolidate their loans end up saving thousands of dollars per year, which gives them the chance to use those savings towards paying down their loans sooner.

Should I wait until after graduation before applying for loan consolidation?

Sometimes, students prefer to wait to consolidate their loans until after they graduate college. However, waiting can actually hurt your chances of qualifying for a low-interest loan. Your income may not yet be high enough to show that you can afford the monthly payments on a consolidated loan. Plus, if you wait, you run the risk of losing an incentive offered by your lender. The longer you wait, the bigger the payoff you’ll receive if you meet the qualifications for a low-interest, fixed-rate loan.

Is consolidating my loans safe?

Your lender cannot legally take any action to collect on your loans if you go out of business or declare bankruptcy. Lenders will continue to send statements and demand payment until your account is paid off. Because of this, it’s smart to consult with a professional before deciding to consolidate your loans. We recommend checking out our blog post, “10 Questions To Ask Before Consigning All Of Your Money Into One Loan,” to learn more about how to determine which type of loan is best suited for your financial situation.

Are there fees involved with loan consolidation?

Government Student Loans Consolidation

Consolidate Federal Student Loan

Student loans are big business for banks and private companies. Banks make money off of interest rates while consolidators offer students lower rates if they consolidate their student loans. These two groups of people don’t always cooperate well together. When you’re trying to pay down your student loan debt, you need to understand how you’re going to do that. You may have heard about consolidation before; you might even know someone who has already done it. But what does it mean? How much would it benefit me? Is it safe? And is it worth my time? Let’s answer those questions and help you decide whether federal government student loan consolidation could help you save money and get out of debt faster.

What Does “Consolidating My Student Loans Mean?”

When you consolidate your student loans, the lender that originally issued your loans combines them into just one loan. That means that instead of paying several different lenders, you only send payments to one place. In return, you receive a single monthly payment that covers all of your debts. To take advantage of this option, you often need to qualify for a refinance of your existing loans at a low rate.

Here are some reasons why you should consider consolidating your student loans:

You won’t lose any credit score points – If you consolidate your loans, you won’t be charged late fees or damage your FICO score. All of your information stays on file. Your lender doesn’t have to share records about your individual loans.

You get access to extra repayment options – Federal student loans offer different levels of flexibility depending on the type, term, and amount of your loan. As a result, you can choose to take longer to repay your debt over shorter terms, or pay back your loan with smaller monthly installments. Consolidating your loans lets you use these additional repayment options.

Your current lender may not offer the lowest possible rate – Most likely, your original lender didn’t give you the best rate. Since a consolidation loan is backed by the full faith and credit of the U.S. Government, you can borrow money at a lower rate than you otherwise could afford.

It helps you avoid defaulting on your loans – Once you start making payments on both your consolidated loans and your original ones, you won’ t be able to stop unless your financial situation changes significantly.

How Does Consolidating Work?

In order to take advantage of federal government student loan consolidation, you first need to find an approved lender. There are many lenders offering consolidation services; however, only a few can actually handle the paperwork required to combine your loans into one. Once you identify a qualified lender, you then fill out an application. You provide your name, address, telephone number, social security number, income, and other relevant information. Then you wait until you hear back from the lender.

If you’re approved for the consolidation, you’ll begin making payments on your combined loans. Depending on the lender, you may need to complete a simple online form or fax documents. Your lender will contact your previous lenders to verify that your application was received correctly. After verifying your eligibility, the lender sends you a letter telling you exactly how much you borrowed, and what your balance is currently.

The lender may set up automatic payments based on your payment history and the dates of your past due payments. However, you can still change your mind and cancel the consolidation at any point. You can also request a refund of any remaining funds paid after you discover that you aren’t eligible for the program.

Should I Consider Consolidating My Student Loans?

Government Student Loans Consolidation

What Is Federal Direct Loan (Direct) Consolidation?

Federal direct loan consolidation is the process of consolidating federal student loans into one manageable payment plan. When students consolidate their loans they get a single monthly repayment plan based on the total amount borrowed instead of several smaller payments. Typically, borrowers receive lower interest rates after consolidation than if they had not consolidated.

How Does Federal Direct Loan Consolidation Work?

Consolidation is done at the college office where you obtained your loan funds. You would bring all of your original promissory notes and copies of any loan agreements. A representative from the lender/servicer will review these documents, verify your information, explain how consolidation works, determine the best way to consolidate your loans, and make sure you understand the terms. After reviewing your application, the lender will send you a letter stating what type of consolidation product is right for your situation. You then choose the loan servicer that you want to work with. Most lenders offer online applications or can walk you through the entire process over the phone. If you have questions about applying for a consolidation, please contact us. We can help!

Why Should Students Consider Consoling Their Loans?

Federal direct loans carry higher interest rate than private student loans. Over time, paying off your loans faster saves money, especially if you’re using student loans to pay for school. Also, many schools have special programs to reward those who complete their degree program on-time or early. Plus, some types of federal loans don’t accrue interest while you’re in school. So, even though you may already owe thousands of dollars when you graduate, the actual balance of your loan won’t increase until after graduation.

How Long Do I Have To Take Out My Loans Before Paying Them Off?

Once your loan term is set, you generally have 10 years to take out your loans and pay them back before your payments start increasing. There are two exceptions to this rule:

First, if you have a private loan, the length of time before payments start increasing is 14 years. Second, if you have unsubsidized Stafford loans, the length of time is 6 years. But, once you’ve reached that time frame, you’ll still be able to apply for consolidation again.

Will Lenders Offer Me Lower Interest Rates On My Consolidated Loan?

Yes. Usually, you’ll find that you save money on your loan when you consolidate. If you were charged 5% interest, when you consolidate, your annual percentage rate drops to 2%. In addition, you’ll likely qualify for lower monthly payments. However, your credit history will play a big role in determining your interest rate. Your FICO score affects the interest rate on both private and federal loans. Generally speaking, the worse your credit score, the higher the interest rate.

Can I Use Private Loans Instead Of Federal Direct Loans To Consolidate?

You can use either federal or private loans to consolidate your debt. However, the interest rates are much higher for private loans. And, private loans are harder to qualify for due to stricter guidelines.

Are Private Loans More Expensive Than Federal Direct Loans?

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