What Is Consolidating Student Loans?

Consolidating student loans means having several different types of student loan debt under one single payment plan. This saves money over paying interest on multiple loans at once. Consolidation is great if you have many different loans, but what happens if you don’t? You could lose out on any future financial gains!

Here’s why consolidating student loans makes sense. If you have a consolidation agreement with a lender (usually a bank), they’ll take care of the paperwork and make sure everything goes smoothly. All you need to do is pay off your outstanding loans, then make payments until they’re completely paid off.

Why should I consolidate my student loans? Well, most people who consolidate their student loans find that they save a lot of money. On average, borrowers can expect to save around $100 per month. That’s enough money to put towards savings, a vacation, or even a car!

But you can also save money on interest charges. Most lenders offer discounted rates for consolidated loans; that way, you pay less interest over time. Plus, the amount of money you owe shrinks, making it easier to pay back.

Another benefit of consolidation is that it may help you qualify for lower-interest federal student loans. Federal loans give students grants to cover the full cost of their education – no matter how much they spend – plus low-cost repayment options. And there are federal student loan consolidation options available. If you want to talk to someone about student loan consolidation, call 888-995-5566 or visit www.StudentLoansDirect.com.

What Is Consolidating Student Loans?

Consolidation involves putting together various different types of loans into one loan. You may consolidate student loans if you have federal loans, private student loans, PLUS Loans, Perkins Loans, Parent Plus Loans, Federal Direct Subsidized Stafford Loans, state-based loans, or any combination thereof.

A few reasons you might want to consolidate student loans include:

Paying less interest

Lower monthly payments

Using your income to pay off debt faster

There are two categories of consolidation: repayment plans and direct consolidation. Repayment plan consolidation works best for borrowers who have only one type of loan, while direct consolidation offers greater flexibility for those with multiple types of loans.

You may consider consolidating private student loans at either the lender or borrower level. Depending on the situation, these options offer varying levels of control over the consolidation, including how much time you have to make a payment before it’s due (30 days vs. 60 days, etc.).

Direct consolidation enables you to combine many different kinds of student loans into one sum, called the consolidated amount. This means that you can use your income to repay several different types of loans with one payment, instead of making separate payments each month. Most lenders don’t require you to consolidate your loans; however, they often impose additional fees when you do.

The biggest advantage of consolidating student loans is that it lowers your total monthly payments. If you choose to consolidate your loans, check out our article on the pros and cons of consolidation before deciding whether it’s right for you.

Also, keep in mind that consolidation doesn’t necessarily mean you’re getting a lower rate of interest. Your interest rates may not change, but you’ll still have to pay a fee to get them lowered. That said, consolidation could save you money in the long run if you decide to refinance the loans later on.

What Is Consolidating Student Loans?

Author: “Consolidate Your Student Loan Debt”

Date Created: “11/15/2017”

This lesson provides students information about consolidating student loans. Students learn how to consolidate their debt and get started saving money at the same time.

What Is Consolidating Student Loans?

Consolidating student loans refers to combining several federal loans into one single loan. It’s often referred to as “loan consolidation.” While consolidating student loans could save money over time, we should always seek professional financial advice before making any decisions about our finances. Here are some basic rules to remember if you decide to consolidate your student loans:

You cannot change how much you pay back per month

You will lose some benefits (like forbearance) associated with your original loan

Your interest rate may go up

You’ll have to repay a lump sum at once instead of paying off your debt slowly

If you’re going to consolidate, it’s best to do so while you still carry a low credit card balance or have other ways to make payments

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What Is Consolidating Student Loans?

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Why Would I Want To Do That?

There are many reasons why someone would want to consolidate student loans. One of the biggest reasons is because it could save them thousands of dollars in interest payments over time. While it may not seem like much money now, if you start paying off student loan debt at 10% interest, then you’ll pay $20,000 in interest over the course of 20 years. However, if you get a personal loan consolidation, you might only end up paying around $8,250 in interest. Not only that, but you could also qualify for several free services including lower monthly installments and additional repayment terms.

How Does A Loan Consolidation Work?

To consolidate student loans, you apply online for a program called income-based repayment. You’re given an effective date (usually 5 years) and have to make scheduled monthly payments based upon your past financial history. If you don’t make these payments, you will go back into default and accrue even more fees.

What Are My Options?

Since 2005, federal student loan borrowers have had four different types of programs to choose from when consolidating their loans: Income Based Repayment, Extended Repayment, Graduated Repayment, and Pay As You Earn.

Income Based Repayment – Your payment amount depends on your family size and income level. Payments are adjusted automatically each year depending on how much you owe and how long you’ve been enrolled in the plan. There are no caps on how high your monthly payment can be. If your income is low enough, your payment can be as little as zero dollars per month.

Extended Repayment – This is basically a 30-year plan where your monthly payment is just 0.9% of your discretionary income. This means that your payment is capped at about $50 per month regardless of what your income level is. Because your payment is fixed, you won’t have to worry about your payment increasing if your income increases. Since 2010, graduates who entered EIRA between 2007-2009 have been able to apply for a 2nd 15 year period of extended repayment.

Graduated Repayment – Similar to Extended Repayment, your payment is fixed, but instead of capping your payment at $50 per month, they cap it at 8%. So if your income was $30k/year, your monthly payment would be capped at $36 dollars. After 20 years, your balance is completely forgiven. At 25 years, your payment rises to 9%, and after 30 years, your payment reaches 12%.

Pay As You Earn – Just like the name suggests, your payment will depend on how much you earn. So if you decide to take out a fresh student loan, your payment will be calculated using your current income. This plan is great because if your income changes later down the road, your payment will adjust accordingly.

If you do NOT repay your student loans, you will go into collection. Once a loan enters the collection phase, it is considered delinquent, and you’ll be charged late fees, service fees, and possibly wage garnishments. In addition, your credit score will suffer, and you’d likely lose any chance of obtaining financing for a home, car, or any other type of borrowing.

Can I Refinance My Student Loans?

Yes! If you’re worried about losing money by refinancing to a private lender, you shouldn’t be. Private lenders make money by charging higher rates than government-sponsored lenders. So by refinancing with them, you’re actually saving money.

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