Government Student Loan Consolidation
Student loans have helped thousands of students get their college degrees. Even so, the money they get from these financial aid programs don’t come for free. Six months after they graduate, they will need to begin making repayments. While there are individuals who will already have the capacity to pay off their debt, others may not be so lucky, and going into default can only put you into deeper financial trouble. Thankfully, government student loan consolidation is there to help you pay for the loans that you took out to help you pay for your education.
What is government student loan consolidation?
Government student loan consolidation combines all of your loans into a single loan, regardless of whether these loans are from different lenders. There are several benefits offered by consolidating your loans into a single loan. These include:
* Lowering your monthly payments. One of the reasons why government student loan consolidation is so popular is because it lowers monthly payments. Instead of paying for several loans with different rates at once, you will only need to pay off a single loan with a fixed interest rate.
* Giving you a longer time to make repayments. By consolidating all of your student loans, you will be given an automatic extension to pay for your loans, which can be a godsend for individuals who are having difficulties in paying for their debt within the prescribed period of their previous loans. It’s even possible to pay the debt within a 30-year duration, depending on your agreement with your debtor.
* Simplified finance management. With loan consolidation, you don’t have to worry about paying off loans coming from all sides. Instead, you will only need to make your monthly payments to a single lender.
* Giving you room to shop around. It’s actually possible for you to shop around to find a lender to do the consolidation for you, even if your previous loans are from a single lender. As such, you will be able to find the lender that offers the best rates, potentially allowing you to make savings in the process.
How to do government student loan consolidation
The first thing that you will need to do is to search for a lender to do the consolidation for you. Ideally, you should choose one that has low interest rates so that you don’t end up paying more than you have to. The lender will usually be the one to coordinate with the previous lenders when he or she consolidates the debts. If your loans have different interest rates, the average of these rates are used as the interest rate of your consolidated loan.
Lenders will usually require a minimum balance before they can consolidate your loans. Usually, lenders allow consolidation if your balance is around $5,000 to $7,500 or higher.
Do note that you aren’t allowed to consolidate your loans while you’re still studying. Instead, you can apply for consolidation within the 6 months after you graduate. Loans that are in default may also be consolidated if these still have repayment arrangements. Repayment of your consolidation loan will then begin within 60 days of disbursement of your loan, although this can change if the borrower qualifies for or applies for a deferment or forbearance.
Is government student loan consolidation for you?
While government student loan consolidation is quite helpful in helping you manage your finances, it’s not meant for anyone. Listed below are some things you will want to take note of when it comes to loan consolidation.
* You can end up paying more in the long run with consolidated loans. While you will be making smaller monthly payments, the payment period will run longer, which is why you will end up paying a higher amount if you opt for consolidated loans. Experts suggest that those who have relatively new loans should not use consolidation, since the interest rates haven’t built up yet, On the other hand, those who have had their loans for a longer period of time (particularly before July 1, 2006, back when the interest rates weren’t fixed yet) can save money by consolidating.
* While students and parents can consolidate the loans they applied to pay for schooling, they cannot consolidate these loans together, since loan consolidation is only allowed for individual borrowers.
* Married students aren’t allowed to consolidate their loans into a single consolidation loan. In the past, this was allowed. However, issues arose when couples realize that the loans cannot be separated in the event of divorce. As such, this provision was repealed by law, prohibiting married students to consolidate their loans together. Instead, they will individually need to pay for their loans, consolidated individually or otherwise.
* You can only consolidate your loans once. While it’s possible for a single loan to be consolidated, you cannot consolidate a consolidated loan. The only way that this can be done is if you consolidated other loans with your consolidated loans. You can also consolidate two or more consolidated loans together.
Government student loan consolidation can be helpful, but it can end up making you lose more money in the long run. Make sure that you evaluate all your options before deciding what action to take so you will be able to make the most savings in the process.