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Student Loan Consolidation Is An Easy And Effective Way To Take Worries Away
If you want to reduce stress and take your worries way regarding paying off student loan debt then there are a few easy and effective options that can make the situation less overwhelming. Since you are not the only one facing such a situation, you should not think that there is no way to deal with such an issue.
Going by the statistics, there are over 40 million former students that still face the brunt of student loan debt. This is because most of the former college students do not know about the ways in which they can pay back their debt.
Fortunately for you, there are useful programs like Student Loan Consolidation or Refinancing that will help you to get rid of this longstanding debt against your name. Programs like these will work well for you and at a rate in which you will also avoid being a delinquent customer.
Student Loan Consolidation is almost same as any other debt consolidation that you may wish to take if you have more than one loan from one or multiple creditors. With the help of the Direct Consolidation Loan program, you can now simply combine all your loans depending on its type into a single loan that often has a lower rate of interest. This will eventually make your monthly payments smaller thereby making it easier to manage.
On the other hand Student Loan Refinancing is a much similar concept with the only difference that it is done through a private lender. Considering its features, this happens to be a far better decision for the borrowers who are earning more now than they used to be when they were in college.
However, when you choose for refinancing make sure that you do not sell the federal programs to the private lenders. This will make it harder for you to repay as you will lose the eligibility for income-driven plans that are inherent with federal student loans.
Separate your loans
If you want to consolidate your student loans you will first have to separate the federal and private student loans because both have significantly different consolidation procedures. If you separate these loans you will not only be aware of the kinds of loans you hold but will also know about the different loan consolidation options that are available.
- If your loans are federal you are most likely to qualify for different government programs to consolidate your loans. The Federal Direct Consolidation Loan program will let you to have only a single bill each month. Apart from that, you may also apply for Income-Driven Repayment if you wish. These you cannot get from private lenders but you must keep in mind that the rate of interest rate of these consolidated loans will be weighted and will be therefore rounded up to the nearest ⅛ of a 1%. This will raise the overall amount a little but that you pay as interest. However, if you wish to take a consolidating debt carrying varying interest rates, the rate of interest will be in between always.
- If your loans are private you will have to follow the student loan refinancing route through the private lenders. The lending policy may differ from one lender to another and therefore you will need to research and explore all available options and choose the best one for you.
You will need to verify your eligibility for student loan consolidation eligibility which is also different for a federal loan and a private loan.
The federal loan itself is your eligibility provided it was not consolidated by a private lender previously. On the other hand, if you have a private student loan the basic requirements for refinancing are:
- A good credit score above 660 and standing
- A well balanced debt-to-income ratio of lower than 45% and
- A proof of a stable income above $25,000 per year that may be in the form of pay stubs.
It is only after you qualify that the application process starts. You can apply for the Federal Student Loan Consolidation program electronically though paper application process is also permitted. However, electronic application process is much faster and takes about half an hour to complete. You will however need a verified FSA ID, income verification and basic contact information for the process.
As for student loan refinancing, the application process requirements may vary from one private lender to another.
Choosing the best lender
If you go for student loan refinancing make sure that you choose the right loan servicer. As there are a lot of such private lenders and companies you will need to know which one will work best for your loans considering the following parameters:
- The rate of interest whether it is fixed or variable
- Option to postpone your payments
- Online reviews of current or past borrowers and
- Unique features in the plans that others may not have.
As for the federal Student Loan Consolidation there are a few questions to ask such as:
- The types of repayment plans available for the consolidation
- Time when you can consolidate your loan which should be either after you leave school, graduate, or fall below the half-time enrollment
- The chance in interest rate as federal consolidation does not lower the interest rate and only takes a weighted rate of the loans that you already have
- The possibilities of changes in your repayment options based on your consolidated loan balance which can be ten to thirty years and
- The time to start repaying your consolidated loan which is usually immediately after receiving the first bill within 60 days of disbursement of the consolidated loan.
Apart from that, you may also inquire whether you can take the advantage of your grace period if your current student loans still have it. This will help you to delay your repayment till the time this grace period is over.
Also know what happens if you can consolidate your student loan if you are default currently or have already consolidated your federal student loans. Also know about the application fees and forgiveness plans if you are eligible.