The average college student graduating this year will be responsible for repaying student loans anywhere from $ 10,000 to $ 100,000 or more. One of the most important financial decisions these graduates will make is how they pay back their loans.
Protecting Your Credit
Student loan repayment has a direct impact on your credit ratings and, consequently, on your prospects for future loans and financial well-being. If your student loan is more than 85% of your total monthly income, it will be assessed as a negative, and negative credit information can remain on your credit report for up to 7 years. Obviously, it's important to repay your student loans in a timely and orderly fashion.
One repayment option, the one most consider the best, is to consolidate your loans. There are no application fees, credit checks, or cosigners required for a student loan consolidation. There are, however, many different educational finance organizations offering consolidation and before you apply to any particular agency, it's important you research the subject of student loan consolidation carefully. Ask questions – once you have signed the papers, it's a legal and binding contract difficult to get out of.
Benefits of Consolidation
There are many variations on the theme, but what all programs have in common is that they will combine your loans into one. The benefits of this include:
Criteria for Consolidation
You are eligible to consolidate your federal student loans when:
Federal vs. Private
Do not consolidate federal and private loans together. Interest on federal loans is tax deductible; federal loans can sometimes be forgiven for certain types of service; and you can sometimes defer payments on federal loans if you go back to school. Private loans don't have these advantages. If you have both private and federal loans, consolidate your federal student loans first, then separately consolidate your private loans. The following federal loans are eligible for consolidation:
1. Stafford Loans
2. Perkins Loans
3. Federal Direct Loans
4. Federal Parent Loans for Undergraduate Students (PLUS)
5. Federal Grad PLUS Loans
6. Federal Supplemental Loans for Students (SLS)
7. Federally Insured Student Loans (FISL)
8. National Direct Student Loans (NDSL)
9. Loans for Disadvantaged Students (LDS)
10. Auxiliary Loan to Assist Students (ALAS)
11. Health Education Assistance Loan (HEAL)
The Fine Print
Debt consolidation agencies can assist you in many ways, the most important of which is reducing your interest rates. They will contact your creditors and negotiate a reduction in your rate of interest and your monthly payments. Some can qualify you for further debt reduction programs. But, do not agree to monthly payments you cannot meet. Make sure the amount of your obligation allows you to pay your regular monthly bills.