One Student, One Loan Learn what every dental student needs to know about consolidation.
by Charisse Dengler
With a massive federal deficit to combat, Congress has been searching for ways to trim the federal budget. Some of the programs that affect the lives of hundreds of thousands of students and graduates across the country fell under the scalpel when funding for federal student loan programs was cut.
The main effect is that interest rates on federal student loans will be rising across the board July 1, 2006. The good news: Until the upcoming interest rate increases take effect, borrowers can still avoid the new higher rates and lock in current low rates through student loan consolidation. And nearly everyone with student loans can benefit from this program.
There are two types of student loan consolidation programs: one for federal student loans and one for private student loans. You may use the same lender for your private consolidation and federal consolidation, but it’s not possible to combine the two types of loans into one loan. There will always be a separate payment for each type of consolidation.
Under current law, interest rates on federal student loans, such as Stafford loans, are variable. Currently, students pay 4.7% interest on their Stafford loans. However, the variable interest rates on federal student loans are expected to rise by at least 1.5% on July 1, and current students face an additional 0.6% interest rate increase when they enter repayment.
This significant difference in interest rates amounts to thousands of dollars in interest payments over the life of a loan. However, by taking advantage of the federal student loan consolidation program, it’s possible to beat the new law and avoid paying thousands of dollars in unnecessary interest payments. The program allows users to lock in a rate of 4.75% and avoid the new, higher rates.
With this kind of consolidation, your existing federal student loans are paid off and replaced with one new loan. Rather than multiple lenders and multiple monthly payments, you end up with one lender and one monthly payment.
That might already sound like a pretty good deal, but the most valuable benefit of consolidation is the savings. Once you consolidate, you lock in the current low interest rate for the entire life of your new loan. Securing this low rate on your consolidation and avoiding the upcoming rate increase will save you thousands of dollars in interest.
Your base interest rate will be the same regardless of what lender you use to consolidate your loans. However, there are still differences between lenders. Consider the customer service and payment incentives, or borrower benefits, that each lender offers before determining which lender to use for your consolidation. Most lenders will offer some type of payment incentive to help you reduce your interest rate even further. Carefully compare each lender’s incentive program. Sometimes, the borrower benefits alone may save you tens of thousands of dollars over the life of a loan.
Another advantage to consolidating your federal loans is that you can stretch out the payments on a federal consolidation loan for as long as 30 years. That means that your monthly payment will be significantly lower when compared to the monthly payment on your current federal loans. Most lenders offer different types of graduated-repayment plans that will reduce monthly payments in the early years of your loan and then gradually increase your payments later on.
Best of all, there are no strings attached for federal student loan consolidation. There are no fees, no credit checks, and no prepayment penalties. To qualify, you only need to have more than $7,500 in eligible student loan debt and be in good standing with your lenders on these loans.
The application process is simple. Most lenders offer an online application requiring general information such as references, personal information, and loan information. Your lender should be able to provide you with details about your loan for your application.
Private loan consolidation, like a private education loan, has nothing to do with the federal government. In reality, a private consolidation loan is just another form of consumer lending, like a credit card.
The main similarity between private loan consolidation and federal loan consolidation is that a lender will pay off your existing private education loans and replace them with one new private loan, so you end up with one lender and one monthly payment.
Unlike federal consolidation, eligibility for private consolidation is based on credit. With private consolidation, everything (your eligibility, the amount you can borrow, the interest rate, and any fees on the loan) hinges on your credit rating or FICO score, a numerical rating intended to indicate your financial responsibility.
How your score is calculated is a very closely guarded secret; but some things that affect your score negatively are not having a credit history, being late with payments, and having too many credit cards or other debt.
The keepers of your credit rating are the three credit bureaus: Equifax, TransUnion, and Experian. Get your credit report from them; read it; and start to watch it like a hawk from now on. If there are any mistakes, get them fixed.
In contrast to federal consolidation, the terms (including interest rate, fees, and repayment terms) of a private consolidation loan may vary significantly from lender to lender.
The interest rates on private consolidation loans are usually variable rates. The method of calculation differs depending on the lender. Repayment terms will vary between 10 and 30 years, based on the lender and the amount of the consolidation.
A lender can preapprove you over the phone for a private consolidation loan in about 10 minutes and will explain the proposed terms of the loan at the same time. It pays to shop around; there may be room for you to negotiate the terms of your private consolidation loan with your chosen lender. The consolidation process usually takes around three months. The actual time to process your consolidation depends on how long it takes for your loan holder to release your information.
Article Title : One Student, One Loan
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I kept putting off consolidating my student loans until I graduated. Then I saw that EdFed encouraged me to start an application at least 6 months before graduation so that I could reserve my consolidation. I called and had my application signed in less than 15 minutes. - Alisha P. Salt Lake City, Ut
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Education is one of the most basic right of any human, but with the increase in prices and the costs involved in education this has made these rights turn into a privilege which very few can enjoy. Any normal person today in the whole of United States has to take an education loan at one point of time to pay for their education fees.