Student loan consolidation advice
Education costs are going up by the year and therefore taking an education loan has become a necessity for students to pursue higher education. The prohibitive cost of higher education has made it difficult for families with two or more children. These families cannot think of financing the higher education of their children with their own earnings.
Taking a student loan is a good option for the students from such families. They can obtain student loans at nominal interest rates, with an option to pay them off after they graduate and start earning. This has reduced the burden on parents enabling them to concentrate on fulfilling other financial needs of the family. The student loans offer the option of repaying the interest part first and the principal much later. Or both the principal and interest components can be repaid in monthly installments. Either way the student can benefit depending upon his circumstances. These loans add up when the student goes in for master's degrees or other specialized courses. Repaying such huge amounts can be a Herculean task for them. Student Loan consolidation offers help by converting all these loans into a single loan which is known as refinancing with a reduced monthly payment.
Benefits of Consolidation
Consolidation of student loans is worth considering even if you are paying off the loans comfortably. These benefits help you in the long run with your other financial commitments.
The benefits are listed below:
1. The money saved by the reduction in monthly repayment of student loans can be used towards the repayment of other high interest debt like credit card bills.
2. The monthly student loan repayment is decreased to the extent of 10 to 60 per cent of what you pay normally towards student loans. Savings through consolidation can help to meet the other monthly expenses without any tension.
3. Consolidation also helps to improve your credit score or the debt-to-income ratio which is vital in determining your eligibility for home mortgage or refinancing. Even those who can repay their educational loans comfortably go for consolidation only to obtain this benefit.
4. There are different packages for the benefit of the borrowers so that the rate of interest is further brought down to as low as 2.25 per cent, provided the repayments are regular and in time for a predetermined number of months at a stretch.
5. The Federal Consolidation Loan has a low interest rate that is fixed for the entire duration of the loan, so that there is no threat of the interest rate going up. This helps planning the finances for future needs also.
6. Consolidating loans into a single loan means you need to pay to just one lender thereby making the monthly payment an easy task. This is time saving and allows peace of mind.
7. There is no fee or credit checks and proof of employment for student loan consolidation.
Though the lower monthly payments and longer repayment period may result in the overall repayment which may be much higher, the absence of penalty for prepayment of the loan is definitely an advantage. This saves considerable amount in the total interest that is paid. There is another advantage of availing consolidation as some of them like Federal Stafford Loan allow a grace time of six months immediately after graduation to start the repayment.
A non profit organization, USA Funds offers advice on the best ways to fund higher education and to manage the loans and offers other related financial services to the student community and parents. It acts as a conduit between universities, institutions, parents and the lenders to lend valuable service towards the goal of reaching quality higher education to the aspirants. USA Funds has advised borrowers of student loans consolidation to carefully select the right agent, as there are many agents operating in the field who are not actual lenders. It is necessary to make enquiries about the lender and check the experience and the reputation of the lender from other borrowers or from the advisors.
Managing Student Loans:
Student Loans do not necessarily have to be one restricting the spending on other needs. They need not compromise on their living style and standards just because a large junk of their income goes towards student loan repayment. The Federal Student Loan Consolidation is the perfect solution to these students problems. The Government sponsored program is available free, so that all can avail it. This reduces the monthly payments to the extent of 45 per cent, with a saving of around 400 US dollars every month, which will give you the freedom of spending on other necessities without feeling the pinch. The repayment period is also extended up to 30 years by this form of consolidation. All of these come without any credit check or employment proof or up front fee. Prompt and regular repaying of these monthly installments also results in further reduction of the interest rate for the remaining part of the loan. This also improves the credit rating which is essential for availing other loans.
PLUS Loan Consolidation for parents:
The parents of students can avail Plus Loan consolidation to take advantage of the big reduction in monthly repayments. The program brings with it some other borrower benefits in addition to reducing the interest rate to the minimum. The eligibility criteria are that there should be a minimum of 10000 US dollars in the Plus Loan and the loan should have been taken within the current academic year. The consolidation can be availed even before graduation of the student.
Advice:
Student loan payments should be paid on due dates every month in full, without waiting for the bill. Notify immediately any change in address, any queries about bill or statement or any such concerns, so that keeping track of your loan repayment is easy and simple. Take notice of any communication from the lender about the change of the service provider or address to know where exactly the monthly payments should be sent, or phone numbers for clarifications if any.
A maximum number of federal education-loan borrowers benefit from student loan consolidation. Borrowers need to be aware of the potential pitfalls, as well as the benefits of loan consolidation. Check with your current lender if all of a borrower's student loans were availed from a single lender. If borrowing was made from many different lenders, the borrower must approach only one of those lenders or some other consolidation lender. They should avail the services of such a lender who has a simple application process, known for unstinted customer service, and who offers good counseling on loan consolidation. It is better to permit the consolidation loan repayments to be deducted from the bank account as the benefit package allows a steep reduction in the interest rate for regular, timely repayments made continuously for a long stretch of time without a single break. So care has to be taken to read the fine prints carefully when signing the documents, since a single late payment can spoil the advantage of interest rate reduction for the whole duration of the future repayments. It is also to be understood that student loan consolidation extend the repayment period to many long years considerably increasing the total amount repayment amount.
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