Student Loan Consolidation

Should you consider student loan debt consolidation?

If you have several outstanding college student loans and you are wanting to possibly lower your monthly payments, then you should consider consolidation of your student loans.

If you are considering consolidation of your student loans, this student loan consolidation checklist will help you decide which might be your best option.

Things to consider regarding Student Loan Consolidation

If you are thinking about consolidating your student loans, here are several things you will want to consider before making your decision.

1. Make a complete list of the student loans you currently have.

2. Calculate your monthly payment amount for all of your student loans.

3. Compare your monthly payments to your budget.

-Calculate your monthly income and determine how much can be used to repay your student loans

-Compare the amount of money you can set aside each month for your loan payments to the total amount of your monthly loans.

-If you monthly budget amount available is less than your monthly loan payments then you need to reevaluate your income and budget, consider your repayment plan options, consider deferment or forbearance as a short-term relief, if your debt relief is long-term then consider student loan consolidation.

4. Consider Student Loan Consolidation

-Decide which student loans you want to consolidate.

-Consider the potential impact of student loan consolidation on your future cancellation options, deferment options, forgiveness options, interest rates, and borrower benefits.

-If you decide that consolidating your student loans is the right option for you, then you should learn more about the student loan consolidation process and how to apply.

-If you are currently making payments on your school loans, make sure you keep making those payments in full and on time until your loan consolidation is complete.

Student loan consolidation is a way to put your school loans into one new loan which reduces the number of monthly bills and may possibly lower your monthly payments.  If you have federal student loans, school loan consolidation gives you the chance to lock in a low fixed rate loan.

Loan consolidation is an option for borrowers with any number of Stafford and/or PLUS Loans, including just one loan. However, the law allows lenders to set a minimum balance for student loan consolidation. While many lenders require a balance of $7,500, Sallie Mae's minimum balance is $5,000.

There are several types of school loans available to students. The simplest categorization is into federal student loans and private student loans.

Federally funded school loans are administered initially through the US Department of Education's Federal Student Aid programs, and are usually the easiest to get student loan consolidation services for.

These federal programs disburse about $80 billion a year in loans, work-study support and grants. Stafford loans are the most common form of federal loans for students, but there are a variety of other federal payment plans - among them military / ROTC plans to pay for college.

Private student loans are administered by standard lending institutions. Among the most common are Citibank student loans and the Sallie Mae Signature student loans. These lenders are basically providing unsecured (or in some cases secured) loans to you as a student, and will most often charge higher interest rates than their federal counterparts.

Private and federal loans, along with scholarships, can be combined to fund your education. However, it's important that when it comes time to consolidate student loans, you do not mix the two types together.

You should always consolidate your federal school loans first, then separately consolidate private student loan debt.

The benefits of consolidating your federal loans include: a lower interest rate (usually, but keep in mind that interest rates change every July 1), increasing the time for loan repayment to 30 years which reduces your monthly costs, and reducing the number of lending institutions you send checks to every month.

Trends for student loans
Nearly 50% of recent college graduates took out student loans, with an average borrowed around $10,000

(1). Until recently, student loan interest rates ran between 6-8%. Recently, though, rates have fallen very low. Stafford loan interest rates were in 3-4% range.

(2). Students who currently have loans, either a single loan or multiple loans, have a variety of options for reducing their payments and indebtedness. Because interest rates have fallen, loans can be consolidated or in some cases refinanced. When you're considering refinancing student loans or student loan consolidation, you need to compare interest rates before you consolidate federal student loans.
 
Effects of student debt
Like any debt, student loans can influence your credit and your future decisions. Students who borrowed a substantial amount for college (more than $5000) are less likely to pursue higher education

In addition, student loan debt that exceed 8% of your income can be seen negatively when your credit gets assessed for future loans (this is especially true if you have one or more defaulted student loans).

 Two ways to reduce the debt burden are:

1. Reduce or eliminate the principal balance. Specific types of loans can sometimes be forgiven by service or other higher education - look into the specific student loan program you have.

2. Reduce your monthly payment. Since debt burden is measured by comparing your loan payment to your income, reducing your payment helps your credit evaluation.