Know How to Consolidate Student Loans
Some Tips To Help You Consolidate Student Loans
Your decision to consolidate student loans will help you bring down your monthly outflow and increase your cash balance. Given below are some guidelines which will help you in consolidating student loans.
Every student loan has a period known as the grace period where the borrower is not required to pay despite completion of education. Normally, this period is the first six months after graduation. This is the best time to you consolidate student loans and qualify for lower rates. Once your grace period expires, you will lose this advantage when going in for consolidation.
What is the Federal Family Education Loan Program?
At present, you stand to get a better deal than others in the past due to the enactment of the Federal Family Education Loan Program. This Act has increased the number of lenders with whom you consolidate your loans.
The federal law has fixed the interest rate to be charged upon federal school loan consolidation. This limit cannot be exceeded by lenders. Doing so will be a violation of the law. All loans for consolidating federal student loan cannot charge interest rate beyond 8.25%. Any lender charging a higher rate can be penalized by law. However, this is the maximum rate. You can still negotiate to bring down the interest rate even lower. This is where your ability to search for the right loan enters the picture.
Do Not Lose Your Benefits!
However, things are different if you have obtained a federal student loan as well as a private school loan. If you consolidate both the loans into a single loan, you shall lose the benefit of cap on interest rate which has been fixed at 8.25%. Once you consolidate, there shall be no limit on the interest rate that can be charged on the consolidation loan. Rather than combined consolidation, you should opt for any of the two options offered by government to get some breathing space during tough financial conditions. Always place a very high premium on your federal loan benefits. Instead, opt for other options to save your loan and your hard earned money.
What is meant by deferment?
This is an option which permits you to avoid repaying the actual loan taken for a fixed time period. Further, you can avoid interest repayment as well. However, this depends on the type of loan you opt for. Deferment can help cut down your monthly outflow. On the other hand, forbearance is a completely different option. It permits you to avoid making repayments. However, you may have to pay interest. In both these cases, you can request that the interest be added to your loan amount so that you can avoid paying even a single cent as long as your loan is under either of the two options.
To protect the interest of those individuals who use loans to finance their education, the government passed a law related to Higher Education. This Act provides for the various benefits that accrue to those individuals who opt for the federal school loan. The benefits include:
• Fixed interest costs
• No administrative costs or fees
• No credit checks
• No prepayment penalties in case of early repayment
• Benefits of lower interest rate upon loan consolidation during the grace period.