Undergrad Debt Solutions

Find Out if Consolidation is Right For You

The lifecycle of the complicated creature that is financial aid does not stop once you hit the books on campus, or even when you graduate. If you are a student with loans, you will be aware that they do not pay off themselves, but can live and grow, if you are not careful, until they are taken care of. Once you graduate from college or drop below half-time status as a student, your repayment of these ugly beasts begins. Recent reports on student loan debt are not optimistic – students often find themselves forced to search desperately for a job immediately after graduation in order to begin wading out of their deep debt. However there are steps that you can take – such as the loan consolidation outlined below – to make the process of repayment less painful so that you can be debt-free and enjoying your college degree sooner and with less stress.

With millions of undergrads applying for federal student loans each year and an alarming number even applying for high cost private loans, it is no surprise that these students walk away from college with a degree and a decade or more worth of debt. Luckily, federal student loans such as the Stafford, the single most widely disbursed student loan, can be consolidated with no fees and no credit check. This will not take the sting out of your payments, but it will lessen them by about half, although of course there will be more of them. Consolidating your loans, whether they are federal or private, may be an appropriate choice upon graduation, depending on your financial circumstances and job situation.

Once you graduate you have a brief six-month grace period before your loan repayment kicks in; or you may defer loan repayment and head back to school for a graduate degree. As long as you’re enrolled in school on a greater than half-time basis you may put off loan repayment, but it won’t disappear on its own. And you can’t go to school forever. Most students graduate and find themselves anxiously awaiting the doomsday of their first loan payment, without knowing how or when they will be able to fully pay them off. But if you take the steps to reassess your payment plan, or if you decide consolidation is right for you, you will not have to be overburdened with monthly payments that you can’t handle.

A big part of loan repayment is making sure you know how to manage your loans responsibly and loan consolidation is a part of responsible debt management. If you decide that a consolidated loan is best for your situation, do it early to cut down the worry and get yourself into an established routine and long-term plan for payment of your debt. Do not wait for the day before your repayment begins, or you risk an uninformed and hasty decision that may keep you paying loans off for longer.

General Federal Consolidation Loan Terms

Two types of federal student loans exist: William D. Ford Direct Federal Loan Program and the Federal Family Education Loan Program (FFELP). Both programs offer a slightly different version of a federal consolidation loan, but they share a number of terms set by the federal government:

• Since July 1, 2006 federal consolidation loans feature fixed interest rates. The government calculation takes the weighted average of all your federal loan interest rates as of the day you apply to consolidate, then rounds up to the next 1/8th. Rates may not exceed 8.25.
• Federal consolidation loans are fee-free and are non-credit based.
• Students must be out of school before applying for a federal consolidation loan.

Consolidate Federal Undergraduate Loans

Even though there are two types of federal student loans, you may find you have both. Here is how you might consolidate them:

• Direct Federal Consolidation Loans are available to undergraduates with at least one Direct Federal Loan or a FFELP loan that has been deemed ineligible for consolidation through a private lender. Borrowers often may include defaulted loans in a Direct Consolidation Loan.
• Federal Consolidation Loans are available through many FFELP lenders, but not all. A few lenders may require you already be a customer to qualify.

Consider the pros and cons of each of these consolidation terms, and make an informed decision based on the assortment of federal loans you are dealing with. Be aware of the differences in eligibility and repayment specifics between these, and bundle accordingly.

Consolidate Private Undergraduate Loans

A growing number of undergraduate students are turning to private student loans to fill in the tuition and college cost gaps. In fact many lenders make the process so simple and allow you to bundle in all kinds of expenses that it’s hard to refuse the temptation. Almost any lender that offers a private student loan will also offer a private consolidation loan. But you might benefit from shopping around. Lenders have a bit of leeway when it comes to including borrower perks—you could save yourself a few bucks if you shop right and keep in mind the specifics of your debt situation. While you’re looking for the best private consolidation option to suit you, keep these factors in mind:

• Some private lenders allow you to bundle auxiliary educational loans you’ve taken out, for high-dollar items like textbooks and computers, in with your consolidation loan.
• A private consolidation loan, regardless of lender, will require you have very good credit or else apply with a co-borrower who does.
• You will have to have a minimum amount of private loan debt to apply as well. A common figure is $7,500.
• And look for added fees that could up your costs.
• Interest rates are usually variable. Shop around for the best incentives including deductions for consecutive on time payments and/or setting up automatic payment deduction plans.
• Also make sure you will not be hit with a fee for early repayment.

If you allow your private loans to enter default, you will be ineligible for almost every private loan consolidation available. The obvious solution here is to consolidate your loans well before you get to the point of default.

Check with your private lender to see what incentives they might offer students wishing to consolidate, and make the decision based on your knowledge of your relationship with money and your financial situation. Is it better to stretch payment out over a longer time and be able to meet every month’s amount with no stress, or to make every effort to pay your loans off as fast as possible, no matter what? Only you can make this judgment call, and the appropriate decision will lead you to a solidly debt-free future in which you can reap the benefits of your education without having to worry if it’s paid off in time.