Consolidate Student Loans – Smart Tips
Student loan consolidation is a great opportunity to lower your monthly payments and free up some cash each month. Here are some smart tips we have for you on the student loan consolidation process:
oIf you are in your grace period, now is the best time to consolidate your student loans. You are in the grace period if you have finished school but are not yet in the payment period, which typically begins 6 months after graduation. If you consolidate your student loans during your grace period, you can generally qualify for a lower interest rate from the lender.
oThe federal government passed a recent law that allows borrowers to consolidate their student loans with any eligible FFELP (Federal Family Educational Loan Program) lender. This means you have more lenders to choose from than in the past.
oThe interest rate on federal school loan consolidation has been set by the federal government, and this is part of federal law, so lenders are legally bound and cannot charge you a higher interest rate for any reason. It’s always in your best interest to get the lowest interest rate you can from the lender of your choice, but interest rates on federally backed student loan consolidation are locked in for the life of the loan and cannot be higher than 8.25%. That doesn’t mean a lender can’t charge you less in interest, so it pays to shop around for the best rate.
oIf you have private and federal student loans, don’t let your lender bundle them into one consolidated loan. If you do, you will lose the federal benefits that are part of your federal loans. For example, the interest limit charged is now 8.25% for federal student loans, and you would lose this limit if you consolidate federal and private loans into the same loan. Deferment and forbearance are options you can use with federal student loans if you are experiencing bad financial times, such as losing your job due to layoff or layoff, becoming disabled and unable to work, etc. These are important benefits that you would be wise not to miss out on. Deferment is when the government allows you to postpone paying the principal of the loan for a period of time. Depending on the type of loan you have, you may or may not have to pay interest during the deferment. Forbearance is when the government allows you to stop your payments for a period of time, but you still have to pay interest payments. In both deferment and forbearance, there may be ways to add interest payments to the back of your loan so that you pay nothing during the deferment or forbearance period.
oThe Higher Education Law was approved for the protection of students who request loans for educational expenses. It specifically requires that federal student loan consolidations have fixed interest rates, no processing fees or loan fees of any kind, no credit check for the borrower, no prepayment penalties if the borrower pays off the loan early, and a lower interest rate if the loan is consolidated during the grace period.