What is Student Loan Consolidation?
Student loan consolidation is the act of transferring the balance
of one or more of your federal student loan accounts into a single
account, usually with a lower interest rate. Student loan consolidation
can save you a lot of money by reducing the interest rate that is
charged on your loan balance, but you can also choose to extend the
length of your repayment period, which would further reduce the monthly
payments you make to service your loan. If you have more than one
student loan, Consolidation also simplifies your overall debt situation
because after consolidation, you would only have to deal with one
(1) monthly student loan payment.
Why Is Student Loan Consolidation So Popular?
Student Loan Consolidation is popular with borrowers because it can
help them save a lot of money in the long term. Student Loan Consolidation
is popular with lenders because federal student loans are guaranteed
by the U.S. government; that means that if a borrower defaults on
a student loan, the lender can always sue the U.S. government for
the balance owed. This, of course, means that lenders assume little
or no risk when they purchase a borrower's student loan debt; the
absence of risk makes government student loan debt very appealing
to lenders, and that's why there are so many lenders out there trying
very hard to acquire your student loan debt.
When Was The Student Loan
Consolidation Option Created?
Student Loan Consolidation was created by The United States Congress
back in 1986 to make the repayment of student loans both easier and
simpler for borrowing students.
Is Student Loan Consolidation The Same As
Other Types of Debt Consolidation?
Student Loan Consolidation is not the same as mortgage refinancing
or other loan consolidation programs available to the public. For
one, federally subsidized student loans are guaranteed by the United
States government. Furthermore, mortgage refinancing involves credit
checks, numerous fees (points, closing, etc.) and collateral; student
loans consolidation requires no credit checks, no bank fees are assessed
and no collateral is required.
Are There Different Types of
Federal Student Loans?
There are 3 types of Federal Student Loans:
- The Unsubsidized Stafford Loan: available to all students
pending credit review and approval. This loan is called unsubsidized
because the government does not subsidize this loan while the
borrowing student is in school; the borrowing student is responsible
for paying interest on this loan from the loan's inception until
it is paid in full. This type of loan is also known as the Unsubsidized
Direct Loan.
- The Subsidized Stafford Loan: this type of loan is
subsidized by the government until the borrowing student is
done with school. Typically, the Subsidized Stafford Loan
has a low interest rate and the loan is granted based on each
student's individual needs. This type of loan is also known
as the Subsidized Direct Loan.
- The Perkins Loan: This type of loan also has a very
low interest rate attached to it. Only the neediest students
will qualify for this type of student loan and payments are
deferred until the borrowing student is done with school.
How Often Do Students Default on
Their Student Loan Debt Obligations?
The approximate national average for student loan repayment default
is five (5) percent. But don't let this seemingly insignificant
number fool you: currently, the United States has about $7 billion
($7,000,000,000!) in delinquent student loan debt.
How Long Does It Usually Take to Repay
the Debts Associated with Higher Education?
Typically, student borrowers recoup the cost of their higher education
by the time they reach their early 30's.
I've Heard That Defaulting on Student
Loan Repayment Can Prevent Me from
Getting The Job I Want. Is This True?
Yes, it is true.
You'll find that many job application forms will ask for your social
security number. Why? Because employers want to check your credit
history. Serious blemishes on a credit report can result in a resume
being tossed into the trash, and student loan repayment status is
often one of the first things a human resources manager will look
for on a job seeker's credit report.
Bottom line: employers want responsible employees, and folks who
choose to disregard their debts are viewed as irresponsible.
I Read Somewhere that You Can Only Consolidate
Student Loans Once. Is This True?
Yes, it is true. Once you consolidate your student loan(s),
you can't consolidate again unless you go back to school and get
more student loans.
Other Interesting Facts Related
to Student Loan Debt
- Back in the early 1970's, grants -- education-related financial
assistance that doesn't have to be paid back -- made up about
eighty percent (80%) of the typical student's financial aid portfolio,
with twenty percent (20%) coming from student loans. Vice-versa
for 2002-2003: according to a recent study by Nellie Mae, the
reverse is now true.
- About forty percent (40%) of college graduates who want to go
on to graduate school but end up not going claim that student
loan debt was a major factor that influenced their decision not
to go.
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