Student Loan Consolidation

by Lisa Sousa

You are out of school and have to pay back your student loans. Just like mortgage payments, car payments and other monthly bills, student loans require regular payments as well. Unfortunately, for many people, some of these payments can be very expensive; especially to those that do not earn that much money.

Pay That Loan Back - Not making the monthly student loan payments will result in some very serious consequences that can damage your credit rating. So, it is of vital importance that you contact your loan service provider or lender as soon as possible if you think you are going to have trouble making the payments. Do not wait until you are behind on them. There are several options available to those who are having trouble paying their student loan bills. One of these options is called student loan consolidation.

Debt Consolidation, a Good Option - Debt consolidation is a very attractive option to many people because it is convenient and affordable. It combines several liabilities or loans into one loan. Consolidation takes out a new loan to pay off a number of debts resulting in one low convenient payment a month. While some do it for the simplicity of the single loan, others use consolidation to attain a lower interest rate. This is no different in the case of your student loans. The repayment is simplified by combining several types of federal loans into one loan making it one easy payment a month. Consolidation loans are available for Direct loans, Stafford loans, Perkins, PLUS, FISL, Health Professional Student Loans, as well as other federal student loans. Private loans can also be consolidated by using a private consolidation loan that is offered by some lenders.

Reduced Payments - The reduced monthly payment made by the Consolidation loan is made by extending the repayment plan beyond the standard 10 year plan. These plans can extended from 12 years to 30 years depending on the the loan amount; however, with this extension, the total amount of interest paid on the lifetime of the loan would be increased.

No Prepayment Penalties - There are no prepayment penalties for consolidation or other federal loans so you can pay off part or all of them. To take advantage of this opportunity, include a letter with the extra payment to your lender indicating that it should be applied to reducing your principal. Without this letter, the extra payment would be treated as and advance payment for the next month. Repayment on a consolidation loan begins within 60 days of disbursement with exception of the borrower qualifying for a forbearance or deferment. There is no cost or up front fees to consolidate your loans other than the slight increase of the interest rate. Some loans such as Stafford and PLUS loans, may charge some fees, but the fees are always deducted from the disbursement check. If you find yourself in a situation where someone wants your to pay an up front fee for your consolidation, chances are that it could be an example of what is called an advance fee loan scam.

Who Can Consolidate? - Both student and parent borrowers can consolidate their loans. However, due to complexity of the loans for two different individuals and the sad possibility of separation and/or divorce, married couples can no longer be able to consolidate their loans together. The provision of consolidation for married couples was repealed as of July 1, 2006. Once the loans were consolidated, each spouse became responsible for the full amount of the loan and therefore the loan could not be separated. Student loan consolidation can be done with any lender the borrower chooses. This enables the borrower to search for a lender with the lowest rates.