Student Loan ConsolidationBasic Guide to Consolidating Student Loans, both Federal and Private
There are several types of Student Loans available to college students. Federally funded loans are administered through the US Department of Education's Federal Student Aid programs and are usually the easiest to obtain. They are also tax deductible, and usually lower in interest as well.
Private student loans are administered by standard lending institutions, and will most often charge higher interest rates than the Federal loans. Another disadvantage of private loans is that they are not tax deductible. Private and federal loans can be combined to fund your education. but they cannot be combined when it is time to pay them off. There are strict rules against this, so be sure to consolidate the Federal loans first, then the private ones separately. Next Student is one firm which can process both Federal and private student loans. Citibank and Sally Mae Signature Student Loans are well-known administrators of private student loans.
Once you've graduated, you must begin repaying your student loans. You'll usually have a grace period, so this is the time to explore Loan Consolidation. There are many ways to reduce your debt load, the most common being to consolidate your student loans.
There are two main benefits to consolidation: The biggest benefit is reducing your interest rates, and thus your monthly payments and overall debt. Interest rates are still at low levels, so chances are you will get a better rate now than when you first got your loan. The second advantage is reducing the number of creditors. This makes it easier to keep track of your payments. If you need to renegotiate your loan terms or are late with a payment, you will only need to deal with one creditor. Reducing your monthly payments will also help you to keep your loans current and your credit rating in better shape.
Student loans can affect your credit rating and future financial decisions, such as buying a house. If you have a debt arrising from a student loan, it is counted against you when your credit is evaluated for future loans.
The maximum amount that any student can borrow is adjusted from time-to-time as Federal policies change. A study published in the 1996 edition of the Journal of Student Financial Aid, suggested that debt for the average undergraduate should not exceed 8% of total income after graduation.
Two ways to reduce your debt burden are: 1) reduce or eliminate the principal balance. Some types of loans can sometimes be forgiven by service or other education. Look into the specific loan program you have. For example, if you plan to be a teacher, you may be able to get some of your student loan debt reduced or eliminated entirely. 2) Reduce your monthly payment. Since debt burden is measured by comparing your loan payment to your income, reducing these payments helps your credit when it is being evaluated.
There are many education lenders who will consolidate your private student loans. These are private companies, not the government, so interest rates are dictated by the lender. Be sure to ask about fees and interest rates when considering a private loan. Private student loans often have interest rates in the same level as home equity loans. If your private education loan has a variable interest rate, you might consider using a fixed rate home equity loan to pay off your private education loan, and lock in the interest rate.
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