Tips & Advice for Consolidating Student Loans
Tips & Advice for Consolidating Student Loans
If you’re a college student, college graduate, or a parent of either: you know how confusing having multiple student loans can be. Most students have more than one loan from more than one lender, which means different due dates and different interest rates. Keeping it all together and staying on top of student loan debt can be a frustrating situation. If you’re trying to figure out a way to streamline this debt into an easier to manage process, you may want to think about student loan consolidation.
What is it and how does it work? In layman terms: a student loan consolidation is one big loan used to pay off the balances on all of your smaller, individual loans. However, the rules that govern this type of loan are quite different than standard consolidation loans, so it is important to have a clear understanding of the basics before you start shopping around.
1. You can only consolidate loans that are in their grace period OR have entered into a repayment plan. If a loan is in default, you will need to work out a payment arrangement before you’ll be able to consolidate it.
2. These loans are available for most federal loans, from FFELP, FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans to Direct Loans. If you have private education loans, you’ll have to research a little more to find the appropriate vendors.
3. The interest rate on the student loan consolidation is not as easy to explain as standard consolidation loans. To make it simple; the interest rate on your consolidated loan will be between the lowest and the highest interest rates on the loans you are consolidating. If you want a deeper explanation; they use a weighted average and round that up to the nearest 1/8 of a percent (capped at 8.25%) to arrive at the interest rate they’re going to charge you.
4. There should be no costs or start up fees involved. If a lender tries to charge you an advanced fee, you’ll probably want to expand your search.
5. Know how much of a loan you need. Most student consolidation loans require a minimum balance of anywhere from $5,000 and up. That’s not to say if your total debt is less than $5,000, you can’t consolidate, you’ll just have to be ready to look a little harder. One possibility is the Federal Consolidation Loan program; they have no minimum balance requirement.
One last bit of advice. If you want any repayment terms other than the standard ten-year term, make sure to specify this. Depending on your loan type, you’ll have different options available, but if you don’t ask about it, you’ll end up with the default ten-year repayment.
Student debt loan consolidation is a positive step in tidying up the mess of individual student loans; plus with just one payment a month, you’re far less likely to get into trouble with late payments. Just be sure to educate yourself on what loans are available for you.
