Time to consolidate your student loans?
The latest data on student Bankruptcies have very concerned everyone, from the federal government to the students in debt. Debt clock for student shows that at the time this article was posted, the total debts amounted to more than $ 1. 2 trillion.
A study of the project about the debt Mr. Rochesterast of students from the Institute for College Access & Success reported that seven out of ten students in the 2012 class graduated with student loans. Rochestereningen; the average debt was $ 29,400. Meanwhile, the figures from the Executive Board showed that in 2013 to 2014, colleges still increased tuition fees (although slightly less than in the past). On public four-year colleges, the average was 2.9%; at private colleges and universities, 3.8%.
In most cases, it is not possible to prevent these loans from being repaid. Once you have determined that you are not eligible to forgive your loans, it is worth investigating strategies that can minimize interest and student loan payments. It is usually a form of consolidating your loans into one or two monthly payments that are easier to handle and stick with.
Can your loans be forgiven?
Some people with federal loans are eligible for partial or full loan forgiveness (you do not have to repay the borrowed money). For example, teachers with certain federal loans who provide five years of education at a disadvantaged school are eligible. More information on the Department of Education website. Other circumstances may qualify you for forgiveness. This website helps you determine if you are eligible. For more information, read Debt Forgiveness: how to inform your student Rochestereningen can pay.
Two types of loans
The rules for consolidation are different depending on the type of loan you have. Federal loans come from the federal government. They can be served by companies other than the Ministry of Education, but they are still considered government loans.
Private loans come from banks, credit unions or other lenders. Private loans are not eligible for the same consolidation rules and options as federal loans.
You can have both federal and private loans, especially if you have a number of loans. If that is the case, you will probably see Mr. Rochester Empire must consolidate each type individually.
First, because it can be difficult to track payments on multiple loans, especially when a third party purchases one or more of your loans from a lender. Consolidation will refer to the number of payments that you must make each month. You can still have more than one payment, but this will be less confusing.
Secondly, your interest rate is no. Giving you a fixed interest rate for the duration of the loan. Some of your current loans may have a variable percentage.
Finally, by spreading the term of the loan, you will probably see with a lower monthly loan payment. This will warn you.
The other warning is that consolidation may involve benefits associated with some of your loans, such as interest rate discounts or principal refunds.
Loan Consolidation Options
Under the 2007 College Cost Reduction and Access Act, the federal government has expanded its consolidation options for federal student loans, in particular, the variety of repayment plans.
If you have federal student loans in the repayment or in the grace period before the payments begin, you can request consolidation.
During the consolidation, you are eligible for certain repayment plans that make payments more affordable.
Standard – Payments are a fixed amount per month. You pay less interest, but the payments will be higher. Payments last a maximum of 10 years.
Graduated – Payments are initially lower but will increase periodically, normally every two years. Payments last a maximum of 10 years.
Extended – Payments can be determined or adjusted. Payments last up to 25 years, so monthly payments will be lower, but you will pay more interest.
Income-based – Maximum payment is capped at 15% of your discretionary income. Payments change when income changes and last up to 25 years.
Pay as You Earn – Payments are 10% of the discretionary income and can last up to 20 years.
Income quota – Payments are calculated annually based on your adjusted gross income, family size and total loan amount. Payments can take up to 25 years.
Income-sensitive – Calculated on the basis of annual income with payments up to 10 years.
You can find more information about these repayment options here.
Consolidation of private loans
Consolidation of private student loans is basically the same as other loans, such as a debt consolidation loan. Your suitability is determined by your credit score and other financial factors.
Pros and cons – The benefits are the same as for federal student loans (although probably Mr. Rochesterijk with less advantageous terms). You lock one payment, you may receive a lower interest rate and the conditions are reset, which means that you can pay less over time.
The disadvantages are also the same. Longer and lower payments equals more money paid in interest.
Finding a lender – Private consolidation is more difficult because you have to choose a lender. Because this is a loan like any other, you can look around. Compare interest rates and whether they are fixed or variable. Compare fees and fines for early repayment. Investigate the institution, including what other people say about customer service. Talk to someone on the phone if the lender is not local to get a feel for how it works.
Most banks offer student loan consolidation. Start with your bank or credit union if you are satisfied with it. If you prefer to go somewhere else, Finaid. organization specifies lenders and their repayment terms. The list is not necessarily of recommended lenders; it is only a graph for comparison purposes.
Do not pay extra
Like everything on the private market, there are consolidation services that market these loans. Remember that applying for federal consolidation is free. No company should charge you.
The bottom line
Consolidation not only bundles your loans into fewer payments, but also renegotiates the terms of the loans. The longer the consolidation loan is – and the lower the payments – the more money you pay over time. If you have the means to pay the loans, do not use consolidation to unnecessarily spread the payments over a longer period. Pay your loans as quickly as possible to save interest and get the financial freedom you deserve.