Dec 12

All About Federal Student Loan Consolidation and Its Specific Features

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Student loan consolidation is essentially considered as a tool to manage one or more debts. Such a loan also allows any student to combine his/her federal or private student loans into one single mortgage with extended loan terms, which subsequently minimize the monthly payment.

For US students, there are two types of student loan categories namely as mentioned below

1. Federal student loans

2. Private student loans.

Federal Student Loan Consolidation:

The Federal student loan consolidation allows a student to consolidate all his loans for one single loan at a lower interest rate. The student could also lengthen his term (tenor) of payment. Many financial institutions provide federal consolidation student loans. The students have a right to choose the most reasonable loan package that suits them.

But ultimately, like several other loan options, the federal student loan consolidation also has its disadvantages. Though the students are offered a consolidated loan for less monthly installment, it unanimously increases the full total amount that has to be repaid.

Nevertheless, some of the beneficial features of Federal consolidation student loans are as follows:

* Interest Rate: Federal consolidation student loans have lower rate of interest than most of the private loan schemes.

* Monthly Payments: There is subsequent reduction in your monthly payments. As a student, this can take the load off from your monthly budget and you can also pay the installments easily.

* Single Loan: With loan consolidation, there is only one payment check to be paid each month. This is very convenient and uncomplicated form of payment scheme for any student.

Eligibility Factor for Consolidation Loans

A student is eligible for federal consolidation loans, when he/she is not enrolled in any school and has repaid the loans without any default. Even students who are in grace period after post graduation can apply for such loans. The minimum loan amount should be $10,000 or more.

Students having federal educational loans are also qualified to get a consolidation loan. Private education loans are not considered for student debt consolidation loans. Many institutions and companies provide federal student consolidation loans such as credit unions, banks and secondary markets.

Mixing up private loans and federal loans for student debt consolidation is not a good idea, as the federal loan interest amount is tax deductible. Some loan amounts are also forgiven depending on the nature of job or service. Private student loans are bereft of such benefits, as they are treated at par with normal loans. Combining private and federal loans for consolidation of debts makes you lose all the wonderful advantages of Federal consolidation loan student.

Student loan consolidation is specifically meant to minimize the monthly pay amount and for extending the repayable loan terms. It is very convenient for students struggling to pay their monthly installments scattered in several outstanding loan forms.



By: Daisy Wilson

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Dec 10

The Benefits of Federal Loans Vs the Benefits of Private Loans

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There are some very significant difference between federal loans and private loans, and students who think they are the same simply because they are both loans and both types have to be paid back the same way are making a potentially grave mistake. While it is true that private loans can be very beneficial, it is vitally important to understand the difference between the two types of loans before making a decision concerning what type of loan to choose. Consider this: if given the choice to pay someone twenty dollars or fifty dollars, which is better? The repayment rate for some private loans can be substantially higher than the payback rate for federal loans. That is why it is crucial for students to complete the FAFSA form, which can be filled out right online. By doing so, students can find out whether or not they are eligible to receive federal loans such as the federal Stafford loan, which has a lower fixed interest rate than most private loans. This is not to say that private loans are not without benefits as well, simply that it is important to compare the two of them and decide what will be best from there.

One of the more prominent differences between federal loans and private loans is the fact that, in order to qualify for federal loans, a student must fill out and submit the FAFSA form, while students applying for private loans do not have to submit the FAFSA. Furthermore, most of the federal loans offered are need based scholarships, meaning that only students who demonstrate acceptable levels of financial need can receive them. Private loans, however, are generally awarded based on the potential borrower’s credit history; a cosigner may be necessary to receive a private loan.

Federal loans are disbursed directly to the student’s school and thus have to be used only for the COA. With private loans, the funds go straight to the recipient of the loan, usually within five business days. The things for which the money is used is left up to the borrower’s discretion.

There is a cap on how much money the federal government will allow a student to have for any given loan each year so there are no guarantees that a student’s financial aid package will meet all of his or her college expenses and needs. In general, borrowers can receive substantially more money from private loans, as there is no annual cap.

With federal loans, students are guaranteed a grace period of six months following graduation or withdrawal from an institution. If necessary, there are other opportunities for deferral as well, provided that deferment is approved. Conversely, the recipients of private loans can seek deferment only while they are in school. Private lenders offer no grace period and it is much more difficult to receive a deferment after the borrower has finished with school. Continue reading »

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Dec 10

Understanding Private Loans For Education

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Private loans – students hear about them but sometimes do not quite understand exactly what they are, what they are for, or what they entail. Basically, private loans for education can make up the difference between the amount a student receives from federal financial aid and the actual cost of his or her college education. If a student’s financial aid package does not quite meet their needs and he or she has gotten all the grants and scholarships he or she possibly can, private loans can be a saving grace.

Unlike with federal financial aid, a student’s eligibility for private loans for education depends on his or her credit score – or the credit score of his or her parents. Private loans offer more flexible repayment options than some federal loans, especially when it comes to parent loans. In general, private loans are more expensive than federal loans, but they cost less than credit card debt. Federal loans also offer lower interest rates, so students are always encouraged to get as many federal loans as they can before looking into private loans for education.

Private loans do have their merits, however. As mentioned, they are sometimes the saving grace when a student has exhausted the federal amount he or she is allowed but still has need of financial aid. Parents are often better off with borrowing private loans as well, namely because they can defer payments until their child graduates (for instance, if their child has promised to pay off his or her own school debts, but needs help with getting a loan in the first place) – however, the interest does build up over this time. Looking at it one way, this is really no different than what can happen with unsubsidized federal loans.

The good news is that if a student – or his or her parents – has a decent credit score, it can significantly affect the interest rates for a particular private loan for education. In general, the better the credit score, the lower the interested rate. As such, it is better to apply for a private loan with a cosigner. After all, a student may have a bad – or nonexistent – credit score, while his or her parents have an excellent one. The parents can cosign, defer the payments until their child graduates, and not be responsible for the payments themselves. This is an excellent way to help a child keep their educational debt down, if only for a small amount.

Private loans for education are unquestionable helpful when federal aid simply does not grant enough money to a student. However, they should really be considered a last resort, as federal loans do offer better interest rates. Conversely, private loans often offer better, much more flexible repayment plans, so it all truly depends on an individual student’s needs, means, and financial status. Parents should only consider cosigning a private loan for their child if they are first certain that, should anything happen to make the child unable to pay for the loan, they can afford to, and secondly, if they know they can trust their child to begin paying back the loan after he or she graduates.

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