Using student loans to pay for could cost you a whole lot more. The good news is that federal loans carry a six-month grace period so there is time to develop a plan for dealing with them.
One of the best places to start looking is the federal Direct Consolidation Loan program. If you did borrow money for college, chances are you received a new loan each semester. It is not unusual to owe money to separate lenders, maybe more if you had a combination of private and federal loans.
Each one of these student loans has its own due dates, interest rates and payment amounts. The definition of loan consolidation in a nutshell, is this: One loan, one payment, one lender. Pros of Direct Loan Consolidation Here are pros to consider before choosing: Consolidation means combining all your federal loans into one. That loan will be serviced by one lending institution and requires one monthly payment.
If you still send payments through the mail, this will save you some money on stamps and envelopes, not to mention saving a whole lot of time and aggravation. Consolidating loans will allow you to change the terms and lower your monthly payment.
This should help avoid default if you are struggling to make your payments each month. If you default, your credit score will take a major hit, and it remains on your credit report for seven years. If you have a lot of loans, you probably have a lot of different interest rates. A consolidated loan has a fixed rate for the life of the loan. Consolidation offers a variety of repayment plans, most of which extend the terms of the loan from 10 years to 15, 20 or even 30 years.
A Federal Consolidated Loan is eligible for a number of repayment plans and borrowers are free to choose the plan that best suits their situation. Borrowers also can switch repayment plans at any time. Repayment plans for Federal Consolidated Loans include: Because a Direct Consolidation Loan is a new loan, it restarts the clock on deferments and forbearance for up to three years.
No minimum or maximum. There is no minimum amount to qualify and no maximum amount that can be consolidated. Consistent payment of student loans has a positive impact on your credit score. Missing just one payment will hurt your credit score.
Paying one bill per month instead of should lessen the chance of negligence. Avoiding default, as mentioned above, will help protect your credit score as well. Just be sure that account is well funded every month. Some banks offer discounts on your interest rate if you set up an automatic debit.
Cons of Student Loan Consolidation Here are cons to consider before choosing: Pay more in interest over time. If you consolidate and extend the loan term, you could pay a lot more in interest. The longer you wait to pay off the loan, the more interest you end up paying. Pay off the loan as quickly as possible to save time and money. The new rate is determined by a weighted average of all the other rates, which considers the amount owed, and adding 0.
If your larger loans have a higher rate, then the weighted average will be a little higher than a simple average. No private loan consolidation. On the other hand, certain private lenders allow loan consolidation that could include federal loans, but the interest rates are usually much higher on private consolidations.
Some federal loans, notably Perkins Loans , have loan cancellation if you meet certain requirements. Those benefits could go away if you consolidate the loan. Read all the terms and conditions of your loan before consolidating. Borrowers typically get a six-month window before having to start repaying student loans. That goes out the door when you consolidate your loans. You typically start paying two months after your loan consolidation is approved. Some lenders give reduced interest rates or principal reductions if borrowers meet certain conditions.
You can only consolidate student loans one time. If interest rates fall after you consolidate, tough break! There is no hard and fast rule about student loan consolidation, other than be sure to do your research. Consolidation is a great option to make your payments more manageable and maybe even save some money. However, it may end up costing you more money in the long run. Consolidating your federal education loans can simplify your payments, but it also can result in loss of some benefits.