For college students and recent grads, it is almost a given that they spend a lot of their time thinking about student loans and how to pay them off. For most college-seeking individuals, student loans provide them with the money they need to receive a quality education that will allow them to pursue a lifelong career. Unfortunately, these same student loans can also cause debt problems if you aren’t careful with reading the fine print and choosing a loan that’s right for your financial needs. Many graduates have wondered if student loan consolidation is the right option for them as it supposedly helps to reduce payments and make paying off the loan more affordable. This particular option isn’t right for everyone out there, but it has helped many people live a more financially sound life.
What Does Student Loan Consolidation Mean?
Student loan consolidation is different from other types of consolidation out there that you’d fine on personal loans and mortgages. By definition, consolidation means combining varying loans together to form one single loan and thus, creating one loan payment plan. After going through consolidation, you’ll only have one interest rate to worry about and one monthly bill to pay instead of having multiple loans with variable rates. Being able to simplify your life is only a side benefit for most people, as they are often going through this process to go from a variable rate to a fixed one.
Federal student loans can’t usually be consolidated with other loans and debts that you have. Private loans are different as you’ll be able to consolidate them along with other debts you currently have in your name. For example, you can roll your student loan debt into a home equity loan once you purchase a house.
Federal Loan Consolidation
Federal loans are quite different from others available as they are directly tied to the government. Since they are provided by the Department of Education, federal student loans are often eligible for federal loan consolidation. This is only available to those who have direct loans or for individuals on a family education plan. These specific types of loans can be successfully consolidated so long as they are not in active status. This means that even if your loans are in deferment or default, you can consolidate them into one large lump sum.
This option matters because it helps to lower monthly payments and gives you a more affordable interest rate. You will also continue to be eligible for the benefits that apply to those who have active student loans when doing your taxes. You will be able to go through public service loan forgiveness and find alternative repayment plans, which include a standard plan, a graduated repayment plan and an extended plan that can be paid off over the course of 25 years. Some individuals even go with an ICR or IBR plan that is based on their income after graduating.
Can Consolidation Be Done with Both Private and Federal Loans?
You cannot consolidate private student loans with federal ones as they both have their own specific consolidation rules and guidelines. However, they can be refinanced separately, which still saves you money on what you owe. You can do this through a home equity loan or by going through education lenders specifically specializing in loan refinance. Before you sign any refinance or consolidation agreement, you need to read all of the fine print and be aware of what you’re getting yourself into. Many of these options have payment penalties that could put you in a rather precarious situation if you ever go into default. You are likely to get the best rates going through a federal loan consolidation agency.
In days gone by, students were able to obtain federal family loans which were provided by private lenders but guaranteed by the government. Unfortunately, these loans are no longer available, but consolidation is still available to those who have a FFEL loan. This is the only case where a private loan can be consolidated with an existing federal loan.
Can Parent Plus Loans Be Consolidated?
Parent plus loans cannot be consolidated through the federal government program. These particular loans may not need to be consolidated at all because they are offered with a fixed rate already, but you can seek refinance by blending them with a home equity loan or consolidation agency.
Loan consolidation is an important part of securing your future and getting away from high and expensive interest rates. Many students have found that their loans are almost the ruin of their career and financial success, but there are ways for you to successfully get rid of the hefty bills and get your life back on track without the burden of student loan debt.