Education is paramount to financial and social success in today’s society and most people find the cost of higher learning greater than their financial resources can tolerate. Repayment of student loans can become problematic in the early post college years when trying to establish a financial balance. Paradoxically, the higher the level of education achieved the higher and more cumbersome the debt becomes. Unfortunately there is no way around it; those loans have to be repaid.
Fortunately, for those with multiple student loans there is an avenue for relief. Borrowers still have to repay the debt, but with a student debt consolidation loan, monthly payments are made to only one lender and that normally results in a more manageable monthly payment. Think of it as refinancing. The money borrowed from one lender pays off the debt owed to all of the other lenders.
The Higher Education Act (HEA) provides for a loan consolidation program under both the Federal Family Education Loan (FFEL) programs and the Direct Loan Program. Under these programs, a borrower’s loans are paid off and a new consolidation loan is created. These programs simplify loan repayment by combining several types of Federal education loans (that may have different terms and repayment schedules or may have been made by different lenders) into one new loan. The interest rate may be lower than on one or more of the underlying loans. In addition, the monthly payment amount on a consolidation loan is usually lower and the amount of time to repay may be extended beyond what was available in the separate loan programs. These features should result in more manageable debt and should make borrowers less prone to default.
Student loans are reported to the credit bureaus (repositories) and are revealed on credit reports. Loan balances, monthly payment and payment history become part of the permanent credit record. Lenders, particularly mortgage lenders count the minimum monthly payment on each student loan when determining an applicant’s debt ratio when considering the qualifications for a loan. They even count the loans that are in deferment as a monthly obligation if the deferment term is less than two years. Obviously, if consolidating the student loans reduces the monthly payment the qualifying debt ratio improves. Consolidation may even improve one’s credit score.
There are several repayment plans available starting with the Standard Repayment Plan or the Extended Repayment Plan. The Standard Repayment Plan gives you a maximum of 10 years to repay, but payments are divided within that time limit at a fixed interest rate.
Extended Repayment Plans relieve the burden of monthly payment amounts still further by stretching the time to pay off the loan to between 12 and 30 years (depending on the total amount borrowed). Again, the interest rate is fixed for that time period, and the payments are lower. Be aware that over time, you will end up paying a much higher amount due to interest accumulation, but the monthly payments will be easier to manage.
The Graduated Repayment Plan also allows you to spread your monthly student load debt consolidation payments over a period of between 12 and 30 years, but in this case, the amount of your monthly payment will increase every two years.
The Income Contingent Repayment plan appeals to a number of people because it takes into account what’s going on in your life. In the Income Contingent Repayment Plan, a reasonable monthly payment amount is determined based on your annual gross income, family size, and total direct student loan debt. Another advantage of this student loan debt consolidation repayment plan spreads the payments over 25 years.
Investigation of the viability of consolidating student loans or applying for educational financial assistance should start with the U. S. Department of Education at http://www2.ed.gov/about/offices/list/fsa/index.html. The second stop on the shopping tour might be SLM Corporation commonly known as Sallie Mae; originally the Student Loan Marketing Association) is a publicly traded U.S. corporation whose operations are originating, servicing and collecting on student loans. Managing more than $180.4 billion in debt for more than 10 million borrowers, Sallie Mae employs 8,000 individuals at offices nationwide.
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