The 4 Types Of Student Loan Debt Consolidation

If you have several student loans to pay concurrently, it can be hard and financially difficult to manage. Luckily for students, there is the option to consolidate all your student loans together. We called it Student Loan Debt Consolidation.

What is student loan debt consolidation?

It simply means consolidating all your student loans into one so you only have to make monthly payments to one lender instead of several. The advantage is that you pay lower interest rates and most student loan debt consolidation have higher repayment periods.

There are many financial institutions and banks that offers student loan debt consolidation. They will pay off your existing student loans to their respective lenders. They will then consolidate the loans into one. The interest rate of the new student loan debt consolidation is then calculated by taking the average of the interest rates of your previous student loans. That is why your student loan debt consolidation’s interest rate is lower.

Some student loan debt consolidations are payable at a fixed rate though so be sure to check with your lender first.

There are 4 different types of student loan debt consolidation plans available from lenders each with its pros and cons.

1. Standard Repayment Plan

Standard Repayment Plan offers a maximum of 10 years to repay your student loan debt consolidation at a fixed rate. Payments are calculated by dividing the loan amount within that time period at a fixed interest rate.

2. Extended Repayment Plan

There is also the option of an extended repayment plan. It is the same as standard repayment plan except it stretches the repayment period to a maximum of 30 years. The length of repayment is dependent on the total amount borrowed.

You should note that you may ended up paying more by opting for an extended repayment plan because of the fixed interest rate. On the other hand, the monthly payments would be easier to handle so you will have to decide how much you can afford to pay each month.

3. Graduated Repayment Plan

The Graduated Repayment Plan has a maximum repayment period of 30 years which is the same as extended repayment plan. However, the amount of your monthly payments will increase every two years.

4. Income Repayment Plan

For income repayment plan, the monthly payment is not fixed. Rather it is determined by several factors such as your total student loan amount, the size of your family and your income level. The maximum repayment period is 25 years.

So how do you decide which student loan debt consolidation is suitable for you? Here’s a few tips. If you are close to repaying your student loans, then there is no need to get a student loan debt consolidation unless you foresee some cash-flow problems in the coming months. Consider your financial status now and in the coming months or years. Are you able to comfortably pay the loan? Getting a new student loan debt consolidation is also a good way to improve your credit score since you have effectively cleared your old student loans and getting a new one.

Loan Consolidation Basics

Loan consolidation has many benefits. But before you sign up for one, it is important that you are well informed on the basics and the pros and cons of student loan consolidation.

Rising tuition fees means that student loans are becoming larger as students pursue their studies and carriers. Subsequently, due to high student loans, it has become common for students to have student loans that heavily impact on their day to day living and financial situations for a long time during and after their studies. Due to the potentially huge amounts of students’ loans, the debt could impact on your future decisions and your credit history. In order to have a good credit history, your student loan debt should not exceed 8% of your income.

How can you reduce your student loan debt burden?

* You could eliminate or reduce the primary balance.

* You could reduce the monthly total payment. Given that debts are measured by comparing your income to the loan payment, if your payment is reduced, it will help you in evaluating the credit.

What are the main types of student loans?

Although there are various kinds of student loans, the most common are the federal and private student loans. The federally funded loans are managed by the U.S. Department of Education’s Federal Student Aid programs. It is easy for anyone to get a federal educational loan. These loans are funded the U.S government though grants, work-study support and loans.

Private student loans are controlled by standard lending facilities. The most common student loan program could be obtained at renowned banks such as Citibank, and normally these kinds of lenders charge high interest rates and provide unsecured loans.

One is better off with federal student loans as compared to private student loans. The interests on federal loans are tax-deductible and if you decided to go back to school, you can also defer the payments. On the other hand, private loans do not provide any benefit.

If you have a private and federal loan, it is not recommended to consolidate and mix them together. The best way of doing it is to consolidate every one of your federal student loans and then could consolidate your private loans separately. If one was to combine both the federal and private loans in consolidating, all of the federal benefits will be ineffective.

What are the main 3 criteria used to determine one’s eligibility for consolidating his federal student loans?

1. Firstly, the person should no longer be enrolled in school.

2. Secondly, the person should be actively repaying the debt or at least be in the grace period of the loan.

3. Thirdly, consolidation companies require the customer to have a minimum loan amount. The average amount is $10,000. Student debt consolidations come with many plans. These plans offer basically the same services. These key benefits which one can get are a reduction in the size of monthly payment, lowering the monthly payment, improvement of the overall credit rating and saving useful money.

If a student had a huge student loan, and they do not consolidate it, this will impact on their ability to acquire any mode debt in the future such as mortgages or car loans among others. By consolidating your student loan, you improve your financial situation, and you get a lot more flexibility with your finances.

Loan Debt Consolidation

As with most debt, people are looking to simplify, simplify, simplify. This typically means combining debt to one low-interest payment. The answer for most college and postgraduate students is a student loan debt consolidation. The whole enterprise of student loan debt consolidation is wide and varied. A great many lending institutions, both private and federal, are out there waiting to lend a hand and a great deal of money.

When considering student loan debt consolidation, it would be wise to take it step by step. A very simple and useful first step would be in the direction of your college advisor’s or financial aid administrator’s office. You can begin the process by first finding out if student loan debt consolidation is in your best interest, and if so, where and how to start.

Qualifications for student loan debt consolidation must be the first consideration. There are some basic guidelines to follow:

1. Students NOT enrolled more than half-time, or students out of school for 3-6 months.

2. Students in grace period (up to 6 months after leaving school), or with existing loans in deferment or default status.

3. Students with no previous consolidation loans.

Of course, there are exceptions and instances where these general qualifications for student loan debt consolidation will not apply, especially in the case of some postgraduate programs.

When applying for a consolidation loan, another basic consideration is to weigh the differences between federal (a.k.a. direct) consolidation loans as opposed to private consolidation loans. These two types of student loan debt consolidation programs differ mainly in terms of interest rates and credit ratings.

Federal student loan debt consolidation requires that the applicant have at least one Direct or Federal loan outstanding, such as a Federal Family Education Loan (FFEL). Currently, the interest rate on federal loans is based on the average of the loans being consolidated. Once the interest rate is calculated it is fixed for the life of the loan.

Private student loan debt consolidation interest rates can range from the current prime lending rate to whatever the loan institution sees fit, based on credit rating. Those who apply for this kind of loan must have a good credit rating or provide a cosigner with one.

Student loan debt consolidation will take a degree (forgive the pun) of due diligence and patience to complete. But in some cases it may decrease your student loan payments up to half and simplify your life by even more. The length of consolidation loans can span from 10-25 years, with extended plans available from 15-30 years. On the bright side, the interest paid on most student loans and/or student loan debt consolidation is tax deductible.

In the "big picture" of life an education is a priceless commodity. Knowledge is power and with that power great things can be accomplished.