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:: HOME :: CREDIT CARDS :: LONG DISTANCE :: INTERNET SERVICE :: LOANS · Main Page · Auto Loans · Home Equity Loans · New Mortgage Loans · Refinance Loans · Student Loans  Loan Consolidation Private Loans Tips and Advice Calculators· Debt Consolidation · Credit Report & Score · Tips & Advice - New! · Calculators - New! · Loan Glossary · Loan FAQ · Info & Resources :: CELL PHONES :: INSURANCE :: ONLINE BANKING :: KNOWLEDGE :: MORE |
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Student Loans Tips and Advice Center Topic: Federal Student Loan Consolidation See the subtopics menu for tips and advice about federal student loan consolidation. For additional information about student loans, see the topic list directly below.
 Consolidate Your Federal Student Loans FirstShould I consolidate my federal student loans or my private student loans first? During the first year of college, you went with a federal loan to get you started. Later, you decided to get a few private student loans to help with other expenses. Now you're a graduate with a degree and a lot of confusing paperwork in front of you. Technically, you could plug away at each of those loans, paying variable interest rates and differently monthly fees for each loan. But this can add up to a lot time and money spent. If you've come to the decision that it's time to consolidate, do yourself a favor and consolidate your federal student loans first. When you consolidate, you're essentially paying off all of your student loan debts and transferring them into one new loan with that requires one payment each month. Furthermore, you're probably paying off your debts early and without penalty. This can even help your credit rating in certain circumstances. When you consolidate all of your private loans, you will potentially lock into a much lower interest rate because of your newly improved credit standing. Because most federal student loan plans operate on a fixed interest rate, it doesn't make as much financial sense to do it the other way around. Just remember, consolidate the federal student loans first. ^ Back to top Consolidate Federal Student Loans within the Grace PeriodWhy should I consolidate my student loans within my grace period? Before the ink even dries on your diploma, expect to be contacted about student loan consolidation. Recent grads are sometimes reluctant to dive into any kind of federal student loan consolidation program thinking it's just another type of loan. Well, it is just another type of loan. The difference is that you're combining all of your loans into one easy monthly payment, hopefully with a lower interest and a lower total monthly cost. One of the best pieces of advice regarding federal student loan consolidation is to consolidate within the six-month grace period. If you're still within the six month post-grad grace period, you'll probably qualify for additional savings. In order to qualify, you'll have to get your application in before the last day of your grace period. When completing the application, make sure not to leave anything out. Delays mean time wasted. If your grace period ends and you haven't heard anything about your consolidation application, begin making your monthly payments. Until you see it in writing, you can't be sure that the consolidation loan has been approved and processed. Play it safe with your student loans and always make payments on time. You will be dealing with this debt for years to come, so pay careful attention to all of the details. ^ Back to top Subsidized Federal Student LoansHow can I find out if I qualify for a subsidized federal student loan? With a subsidized student loan, the interest on the loan is paid by the government while the student is in school and during periods of grace or deferment. Student loans may be subsidized if a student can demonstrate financial need. Financial need is based on income and resources compared to the cost of attending a school. In the case of a federal subsidized student loan, the government pays the interest while the student is enrolled in classes (at least part-time), during the six month post grad grace period and during periods of deferment for some loans. If you believe you might qualify for a subsidized federal student loan, the first thing you'll need to do is fill out a FAFSA (Free Application for Federal Student Aid) form. Before you get started, make sure you have the following items close at hand:
^ Back to top Unsubsidized Federal Student LoansWhat is an unsubsidized federal student loan and how should I handle the awarded loan? In contrast to subsidized student loans, anybody can apply and qualify for an unsubsidized federal student loan. These types of loans are not awarded based on financial need and interest begins to accrue the minute you sign the papers. That means interest is accumulating while you're in school, if no payments are being made to the loan. It's a good idea to at least make payments on the interest while you're in school. Otherwise, all of that accumulated interest will be added to the original loan when you graduate and you'll be charged interest on that new total. When you're awarded a federal student loan, you'll be charged for the loan itself. You'll pay a fee of up to 4 percent of the loan, which is deducted from the overall amount of the student loan awarded. Part of this fee covers loan default and the rest reduces the cost of the loan to the government. When awarded a federal student loan, use the money wisely. If you find you have more money than you actually require, hold off on spending it on non-college related expenditures. The more you can pay back on your loan, the better it's going to be for you in the long run. It might be tempting to invest any "extra" student loan money, but you better check the policy of the lender before doing that. While it might not be exactly illegal, you could find yourself in hot water with the lender, depending on their policies. ^ Back to top Find Out if You Qualify for a Perkins LoanDo I qualify for a Perkins loan? A Federal Perkins loan is a low-interest loan for undergraduate and graduate students who have exceptional financial need. What qualifies as exceptional need? According to Fafsa.ed.gov, there are many factors that determine need, but here are a few basic requirements:
To apply for this loan program, you must submit the Free Application for Federal Student Aid (FAFSA). Once approved, your school will either pay you directly or apply your loan amount to your school charges. You'll receive the loan in at least two payments during the academic year. While Perkins loans are similar to Stafford student loans, the main differences are that there are fewer fees, a longer grace period and better cancellation options with Perkins loans. See the next question for more information about Stafford loans. ^ Back to top Stafford Student Loan ConsolidationWhat are the benefits of a Stafford Student Loan Consolidation? Stafford loans are available both as subsidized and unsubsidized loans. With Stafford loans, no payments are expected on the loan while the student is enrolled (deferment). There is also a six-month grace period after the student leaves school either by graduating, dropping below half-time enrollment, or withdrawing. Students who choose school loans through the Stafford program enjoy the benefits of lower interest rates, deferred payments until after graduation and the option of transferring them into a Stafford student loan consolidation program once they graduate. While it's important to search for lower interest rates, it's also important to understand that the low rates advertised may not be effective immediately and certain conditions may apply. For example, when applying for a Stafford loan consolidation, you could be eligible for a lower interest rate if you apply within the grace period (and hold only Stafford loans in that grace period). You must also make the first 36 consecutive payments on time to qualify for any discounts. Furthermore, to take advantage of every interest rate deduction, you should set up automatic checking account withdrawals. Be sure to read all terms and conditions and fully understand all aspects of a new loan before signing any papers. ^ Back to top Consolidating Perkins Student LoansShould I consolidate my Perkins loan with my other student loans? When opting for government student loan consolidation, make sure to leave your Perkins Loan out of the deal. The Federal Perkins Loan is a need-based student loan to assist American students in funding post-secondary education. Perkins loans are for undergraduate and graduate students with "exceptional" financial need. The loan comes from the U.S. Department of Education, which means that your school contributes a share to this loan. There are some loans, such as the Perkins loans, that you should keep open when deciding on a federal student loan consolidation program. For one thing, the government will continue to pay all interest on Perkins loans while you are in school. If you've consolidated that loan, the benefit is lost. The loan, which carries a fixed interest rate for the duration of the repayment term, is worth managing on its own. In addition, the Perkins Loan Program has a nine-month grace period. There is even better news for educators. If you become a teacher in a designated low-income school, a percentage of the loan is cancelled for each year spent teaching full-time. That can add up to a very nice incentive. Be sure to do some research on this and other federal student loan consolidation options before making your final decision. ^ Back to top Defaulting on Federal Student LoansWhat will happen if I can't pay back my federal student loan? You knew the time would come when you had to pay back your student loans, and now that time is here. Rather than paying various rates and payments on a variety of student loans, you decided to consolidate. This is generally a wise move, but you still have to make that monthly payment. What happens when circumstances prevent that from happening? Maybe you're having trouble finding work, paying your other bills or you've suddenly found yourself in an emergency that swallowed up a lot of your funds. If you suddenly find yourself in default, the U.S. Department of Education's Default Resolution Group might be able to help. However, they can only help if you have a Federal Family Education Loan (FFEL), which includes Federal Stafford, Federal Consolidation and Federal PLUS loans. One very real scenario for people in default of federal student loans is wage garnishing. You might also find your federal income tax return is withheld and you could lose your eligibility for other student loans. The best thing to do is to try and get out of default or avoid it altogether. Communicate with your lender as soon as you realize you're not going to be able to make a payment. They just might be able to offer you another payment plan. ^ Back to top
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