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Tuesday, August 28, 2007
Sunday, August 26, 2007
College Loan Consolidation - Quick Tips for Finding Easy Payment Plans and the Lowest Interest Rates
• It's not a scam: This one-time shot to lock in the fourth-lowest rate in the program's history is real, and you won't get a second chance.
• Shop around: Since Congress repealed the "single holder" rule on June 15, you're free to consolidate with the lender of your choice. Ask your school's financial aid office for recommendations.
• Don't delay: Yes, you can shop around, but with time running short, you might do best to stick with your current lender. Since they already have your paperwork, you can prevent missing the deadline due to a paperwork delay. Your application must be "substantially complete" before midnight on June 30. That means when Friday night turns into Saturday morning, you'd better be done. But it's OK if the payoff of the original loans doesn't occur until after the deadline.
• Pick your discounts: There is surprisingly little competition on loan discounts among lenders; the bottom-line benefits don't really vary much from lender to lender. A popular one, which will reduce your interest rate 1 percentage point after 36 months of on-time payment, sounds good, but the fact is that most students can't make 12 months of on-time payments, let alone 36. Focus instead on discounts that are immediate: cash rebates, shorter on-time payment period for rate discounts or an additional 0.25 percent discount for signing up for automatic payments. That way if you do miss a payment, you'll still get those discounts.
• Don't extend your terms: Much of the marketing blitz, including Sallie Mae's, has quoted monthly payment savings based on a 20-year term versus the 10-year term you're probably paying, since that's the mandated default on federal student loans. What the marketing doesn't readily point out is how much more in interest you'll pay by extending your term. You don't have to extend your loan terms, nor should you unless you feel you will have trouble making your monthly payment. Plus, do you really want to still be repaying your own student loans when your children are in college?
Consolidation basics
A student loan debt consolidation simplifies the process of repayment by combining all student loans into one easy payment. Student loans consolidation also gives students the opportunity to lock in their interest rate for the entire length of the loan. Because of these benefits, more students every year are considering the option, and it could be an alternative to multiple loan management worth pursuing.
Students in the United States will find their student loans are consolidated differently than other types of debt, such as credit card debt. Loans that come from the government, or federal loans, are 100 or as high as 8.25%. Keep an eye on the rise and fall of interest rates, and then act accordingly to strike when the rates are low. You will benefit by having an affordable rate in place during the entire length of repayment of your school loans.
Loan debt consolidation is not an endless road of opportunity. You are allowed to consolidate once with a private lender, and then once more with the Department of Education. You have one chance to get it right, so do your homework. Be sure that you have researched all of the consolidation companies. Make it a priority to find the most reputable companies and the ones that offer the lowest rates.
People often refer to federal student loans consolidation as refinancing, but this is not entirely correct. With this form of loan debt consolidation, your loan rate will not change, regardless of how different your previous loans were. It will merely be set at a fixed rate. Keep in mind that all of your previous loans will be weighed to find an interest rate that is appropriate in light of the current rate. As with all aspects of financial matters, there are a number of elements that will affect the rate at which your interest is compiled.
For the many students struggling with school loans, student loans consolidation remains an appealing option. It is important, however, that students do their financial research, and be aware of the pros and cons of loan debt consolidation. It has its drawbacks: Monthly payments, although combined into one, will be extended over a greater period of time than if the student had not consolidated the loans to begin with. In spite of this, student loans consolidation can be invaluable for students struggling with payments, and its benefits lure more students every year.
By: Deanna Mascle
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