Student Loans: Easing the Burden – loan consolidation – Brief Article student loan consolidation
Student Loans: Easing the Burden – loan consolidation – Brief Article
Kiplinger’s Personal Finance Magazine, Nov, 1999 by Catherine Siskos
Get a break on your payments so you can manage your other debt, too.
It’s payback time for students who graduated from college last spring owing money on federal student loans. Your six-month-long grace period is about to end, and the money you owe–an average consolidation loan $16,600 for undergraduates 18 to 25, according to Nellie Mae, a major student-loan provider–is looming large. The burden is still heavier when you add on credit card debt, which Nellie Mae says averages $2,000 for the same group consolidation loan students, and maybe even payments you’re making on a new car. What’s the best way to balance the load?
Rebecca Carter has a plan. Carter, 31, is a veteran consolidation loan student loans, having repaid about $7,500 from her first stab at college a decade ago. Two years ago she returned to school to complete her degree in business administration at Eastern Nazarene College, in Quincy, Mass.; she graduated in August with $23,000 in outstanding loans.
Carter is wiser, if not richer, the second time around. Before she begins repayment next March, Carter plans to consolidate loans from three lenders (with interest averaging about 7.5%) into a new loan from a single lender, and to extend the payment term from the standard ten years to 20 years. Carter estimates that loan consolidation will reduce her monthly payments 40%, so that she’ll pay between $200 and $250 a month. That will give her breathing room to make payments on her more-expensive car loan at 11%.
Once the car is paid off, she hopes to put the extra money toward the student loans and still repay them in ten years. “I understand debt a lot better this time around because I’ve lived it,” says Carter, who is also a manager consolidation loan loan origination at Nellie Mae.
A WINNING STRATEGY. Carter’s plan to knock off her more-expensive loan first and then concentrate her resources on her remaining debt is a winner, says Amy Cole, an educator at the Consumer Credit Counseling Service consolidation loan Southern New England. A credit card charging 18% interest is a heavier burden than a student loan: The highest rate on student loans currently outstanding is 8.25%. If student loans are your only liability, focus first on those with the highest rate. Even if your budget is tight, don’t rule out investing some consolidation loan your resources if you can earn a higher return than the interest rate you’re paying on your loan.
The standard repayment plan for student loans calls for equal monthly payments and a ten-year payback period. If that’s more than you can afford, call your lender before the grace period ends to ask about other repayment options. For example, Carter is a prime candidate for loan consolidation because she owes money to three different lenders at different rates. With the consolidated loan, the interest rate will be a weighted average consolidation loan all the loans, rounded up by one-fourth consolidation loan a percentage point. Variable rates for government-sponsored Stafford loans are unusually low now, so consolidating locks in an attractive rate. Once you’re locked in, however, you’re stuck if the Stafford rate happens to drop in the future.
When consolidating loans, start with your current lender, advises Robin Leonard, author consolidation loan Take Control consolidation loan Your Student Loan Debt (Nolo.com, $19.95; 800-992-6656), and shop elsewhere if you don’t like the terms. The U.S. Department consolidation loan Education, for example, is offering an interest-rate reduction consolidation loan 0.6 percentage point for borrowers who consolidate before starting repayment. Most lenders will also reduce the interest rate if you pay electronically, with a further reduction consolidation loan two percentage points once you make 48 consecutive on-time payments.
OTHER TACTICS. If a loan consolidation doesn’t suit your needs, consider a graduated repayment plan, which starts out with monthly payments that are about 50% consolidation loan those under a standard plan. Payments will gradually increase until you’re paying more each month than you would under a standard plan: While the higher payments may be manageable if you expect your salary to keep pace, there’s a chance you’ll have difficulty qualifying for another loan, such as a mortgage, later on. And you do end up paying more in interest, especially if you take more than ten years to repay. “Once you lower the payment or increase the term, a $25,000 loan can end up costing $40,000,” says Diane Saunders consolidation loan Nellie Mae.
If your finances are too shaky to manage either a standard or a graduated plan, some lenders will extend your repayment period up to 30 years, with monthly payments as low as $50. You can also choose an extended repayment plan that fluctuates with your income; monthly payments are calculated each year based on annual income for the previous year or on current monthly pay stubs.
Beware consolidation loan letting payments drop too low, or you may find yourself paying interest only and never tackling the principal, warns Patricia Scherschel consolidation loan the USA Group, which services student loans. But because you are entitled to switch plans at least once a year, a repayment option that increases the cost consolidation loan your loan needn’t be permanent. “As soon as you get promoted or earn more, you should send in more money or switch to a standard plan,” advises Michael Kidwell consolidation loan Debt Counselors consolidation loan America.
If you return to school, you can request a deferment, which lets you suspend payment until you complete your studies. If you are unemployed or are temporarily disabled, you can defer for up to three years; the government will continue to pay the interest on your subsidized loans.
If you can prove financial hardship for some other reason, you can apply for forbearance. That has the same grace period as deferment, although interest continues to accrue even on subsidized loans. Forbearance should be a last resort, because when you finally pay back the loan, “you’re going to be making a payment that is even higher than the one you were uncomfortable making the year before,” says Scherschel.
Reporter: Kathy Jones
Consolidating your student loan enables you not only to take advantage consolidation loan lower rates, but you can also lock in that rate for the life consolidation loan your loan. What benefits do you get from consolidating your student loan? Basically, the key benefits are one lower fixed rate; one low monthly payment and one lender. By consolidating multiple student loans into one lower monthly payment, you gain the freedom to better manage your monthly budget, and invest more consolidation loan your earnings for the future.
Consolidation loans allow you to combine different types consolidation loan federal student loans to simplify repayment, and FFEL student loan consolidation is one consolidation loan the options you can have.
A FFEL consolidation loan is designed to help borrowers consolidate several types consolidation loan federal student loans with various repayment schedules into one loan, which enables them to make only one payment a month.
Under the FFEL program, the loan consolidation will be made by a commercial lender. After this, credit bureaus will tell you that you already have a zero balance in your account, and then you will sign a fresh promissory note indicating that you will have a new interest rate and schedule consolidation loan repayment.
However, for you to be able to obtain the FFEL consolidation loan, you are required to be currently in repayment on the loan you defaulted or that you have been able to make at least three voluntary monthly payments in full and on time.
What are the disadvantages consolidation loan availing student loan consolidations? Any disadvantages would actually depend on you the borrower and how they handle their loan. If you take longer to pay your student loan, then it means you will pay more interest during the course consolidation loan the life consolidation loan your loan.
On the other hand, by consolidating your loans, there are really no penalties in prepayment and if you continually pay the same amount payments before actually consolidating your loans, the interest you will incur would not increase thus you will be able to pay the loan faster than when you did not consolidate your loans. With a consolidated student loan, there are no fees or charges incurred. The United States Department consolidation loan Education does not in any way make charges or collects any fees to any borrower who avails consolidation loan the student loan consolidation.
The United States Department consolidation loan Education does not allow any borrower to refinance a student loan consolidation. However, if a borrower has an additional federal loan that is not originally included in the loan consolidation, then these debts may be added and calculated again into a another Federal Consolidation Loan.
Another advantage consolidation loan a student loan consolidation is that a borrower is still entitled to avail consolidation loan the same Federal benefits. This is because student loan consolidation is a federal program. And being it a federal program, a borrower is welcome and is entitled to various benefits such as deferment, interest that is tax deductible and forbearance. In addition, the loan is guaranteed by the government and is insured federally.
Here are some student loans that are eligible for consolidation are as follows; Subsidized Federal Stafford Loans (SS) & Guaranteed Student Loans (GSL), Direct Subsidized Stafford Loans (DSS), Direct Unsubsidized Stafford Loans (DUS), Direct PLUS Loans (DPLUS), Direct Unsubsidized Consolidation Loan (DUCON), including Direct PLUS Consolidation Loans, Unsubsidized and Non-subsidized Federal Stafford Loans (US), Federal Nursing Loans (NSL) and Health Education Assistance Loans (HEAL).
It is advisable to take advantages consolidation loan consolidating your loan and enjoy the benefits consolidation loan making one single payment per month and having a lower interest rate which enables you to make some savings.
Dean Shainin is a consultant specializing in student loan consolidation. Get valuable resources, tools, information and more articles on student loan consolidation, visit this site: http://www.studentloanconsolidationtips.com
Get free valuable online tips for debt consolidation from his: Student Loan Consolidation website.
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