How to Consolidate Student Loan Debt
Save Money by Consolidating Your Student Loan Debt
Student loan debt is massive. According to the Federal Reserve, Americans now owe more in federal and private student loan debt than they owe in credit card debt!
Graduating from college is a big accomplishment and a cause for celebration. However, the student loan debt that many graduates accumulate causes stress and worry.
Many graduates have been unable to find a good job by the time they are required to start payments on their extensive student loan debt. The recent downturn in the economy, coupled with changes to the laws regulating the interest rates and fees charged by lenders, have caused many lenders to stop offering student loan debt consolidation programs, including Sallie Mae.
Even if the options are fewer than a few years ago, struggling borrowers are wise to look at any solution that may ease their pain. One possible route is to look into student loan debt consolidation .
Student Loan Debt Consolidation
There are two main classes of student loans: federal loans and private loans. The consolidation options are different for the two. Until mid-2007, most people with student loans received numerous offers to consolidate their debts. Due to a change in Federal lender subsidies, many of these solicitations have stopped, but that does not mean you cannot consolidate your college loans.
Federal Loan Consolidation
- Federal student loan debt consolidation needs to be done through the Department of Education. Some key points to keep in mind are:
- Your federal student loans are not currently in default. If you defaulted on your loans, you must establish satisfactory repayment arrangements with your lender, before you can consolidate your loans.
- At least one of the loans you are seeking to consolidate has not been consolidated before.
- Different types of federal loans, such as Stafford, PLUS, or Perkins loans can be consolidate together.
- You cannot combine federal and private loans in one consolidation.
- The interest rate on your consolidation loan(s) is set by the federal government.
Private Loan Consolidation Eligibility
Private student loans may be eligible for consolidation, too, but it is much harder to consolidate private loans than federal loans. Far fewer lenders are offering private loan consolidation than in years past. Essentially, you have to qualify for a private
loan consolidation the way you would for any unsecured loan. Rules vary from lender to lender, so shop around. Bills.com has private student loan debt consolidation partner you can speak with.
Some general rules about private loan consolidation are:
- Your eligibility is based on your FICO score, your debt-to-income ratio. and your credit history.
- The larger your loan amount, the harder it is to qualify for a consolidation loan. The size of many people's student loan debt is so large that lenders are shy to offer an unsecured consolidation loan.
- Ask about discounts for automatic payments, if you are eligible for consolidation.
Benefits of Consolidation
The main benefit of consolidating your loans are:
- Simplified payments. Rather than making multiple payments, you make only one payment per month.
- Lower monthly payment. In many cases, a new consolidation loan stretches the term of the loan, making your monthly payment more affordable, but also making it so you pay more interest over the life of the loan. If possible, try to accelerate your payments as your income grow, is, to cut down on the amount of interest that you pay.
- Easier tax calculations. Consolidating your loans also makes it easier to keep track of your total annual interest paid. That figure is important if you're eligible for the student loan interest tax deduction. Although the deduction won't save you a lot of money, every little bit helps.
What Happens if You Can’t Pay
If your student loan payments become due and you can't afford to make your required payment, speak to your lender about deferment or forbearance options.
Federal student loans have guidelines that allow you to defer payments if you can’t find work after graduation. Interest continues accruing, but the loan remains in good standing. If you have a federal loan, look into a Income Based Repayment Plan or a Income Contingent Repayment Plan .
You may be able to qualify for a student loan forgiveness plan for federal loans. Contact the Dept. of Education to get information about the Public Service Loan Forgiveness (PSLF) program.
If you can't pay and don’t work out a solution, you could end up with a student loan garnishment .