College Loan Consolidation
Entering into college loan consolidation offers monetary benefits and financial relief to graduating students by reducing student loan payments. In order to build or maintain good credit scores, graduating students must be financially prepared to make monthly college loan payments on time and in full. Otherwise, credit scores can quickly plummet; making it difficult for students to buy a house, or obtain car loans, credit cards and other living essentials after college.
Two types of college loan consolidation options exist. The first involves refinancing federal student loans into one monthly payment. Students in need of financial relief can combine all federal loans which were used for education including Perkins, Parent PLUS, Federal Direct and Federal FFELP loans.
The second type of student loan consolidation involves refinancing private college loans. Educational funds borrowed through banks, credit card companies or SallieMae fall into the category of private lending.
The Higher Education Act Legislation, also known as the Student Aid Fiscal Responsibility Act of 2009, provides for college loan consolidation under the Federal Family Education Loan (FFEL) and Direct Loan Program.
College loan consolidation requires borrowers to take out a new loan to pay off outstanding loan balances on federal and private student loans. This can be particularly beneficial for graduates who carry a high level of educational debt such as tuition for med school, chiropractic school or law school.
When private and federal student loans are consolidated, graduates have one monthly payment instead of multiple loan payments with varying rates of interest. Additionally, consolidating student loans can extend repayment terms to further reduce monthly payment amounts.
Since each type of student loan carries a different payment schedule and interest rate, it can be challenging to keep up with the financial requirements. Students with Direct Loans must abide by federal guidelines and adhere to strict grace periods. Students with SallieMae loans pay interest-only payments while enrolled in college and adhere to their chosen payment plan after graduation.
Students with subsidized loans, such as Federal Subsidized Stafford Loans or Direct Subsidized, are exempt from paying interest during in-school, deferment, or grace periods. Students with unsubsidized loans are responsible for paying interest from the date loan papers are signed until the final payment is submitted. Unsubsidized loans include Direct PLUS loans, Federal PLUS loans, Federal Unsubsidized Stafford Loans, and Direct Unsubsidized Loans.
It is not uncommon for students to have four or more college loan payments to contend with on a monthly basis. In addition to minimizing the number of loan payments, college loan consolidation can also reduce overall interest, reduce monthly payments, and extend payment terms.
Many variables exist with federal college loan and personal college loan consolidation. One of the most trusted sources for obtaining accurate information is Federal Direct Consolidation Loans information center at LoanConsolidation.ed.gov. Here you will find a comprehensive list of frequently asked questions, loan consolidation calculators, and instructions for applying for student loan consolidation.
It is important to note that student loans cannot be discharged through personal bankruptcy. Defaulting on college loans will reflect on credit ratings and remain on credit reports for seven years. Therefore, it is crucial to take action to ensure college loan payments remain current until fully repaid.
Individuals unable to adhere to college loan payments and overwhelmed with debt, might be able to restructure payments under Chapter 13 bankruptcy. Obtaining bankruptcy approval for college loans requires borrowers to show extreme financial hardship. Bankruptcy remains on credit reports for up to ten years and causes serious damage to FICO scores. Filing personal bankruptcy against college loans should be used only as a last resort.
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