Consolidate Debt or Loan of Student, Start the Research Now!
Consolidate the debt or loan of student is a topic every college student reads with interest. No wonder for every student wants to reduce the burden of debt. This debt accumulated from all the loans borrowed from different sources in order to make a college degree a reality.
If graduate school is on the horizon then the student may have to borrow more money to finance the realization of that dream. In this case sometimes it is better to consolidate the debt or loan of student as this may reduce the monthly burden somewhat.
More than likely, federal and private loans and scholarships are combined to finance the college education. When it is time to think of paying for this, the private and federal loans cannot be mixed. In this connection, it is best to consolidate the federal loans first before doing the same with the private loans.
However, remember that one is only eligible to consolidate the debt or loan of the student when he is no longer enrolled or is registered only for half the time. He must also be within the grace period or actively making payments for the loan. Also, bear in mind that most companies require some minimum amount which is usually $10,000.00.
The federal student loans have advantages that private loans do not have, like the deductibility of the interest for tax purposes. In addition, federal loans can be forgiven if the student opts for a certain type of service. Also, going back to school can sometimes allow a person to defer payments.
Here are some points to consider:
- Aside from not being able to consolidate the debt or loan of student, there is that new rule starting in July 2006 that all federal student loans carry a fixed interest rate. It used to be one could lock in the loan at a lower interest rate than one is currently paying so this strategy no longer works for everyone.
- One may have a lower monthly payment but this could add thousands of dollars in interest when the life of the loan has become longer.
- If the consensus is for the interest rate to go down by next July, then wait till then to consolidate. If the interest rate goes down and the consolidation has already been done, you will not be allowed to do it again at the lower rate.
- One will now be allowed to choose a repayment plan that is based on one's income. This will benefit the student whose salary is low and here is the good news. If the loan is not paid off after 25 years, it will be forgiven. The warning here to watch for is that this will start the clock again and the loan will have a new term of 25 additional years.
- It is different when you plan to consolidate money borrowed from private sources. One can still save money from this. This will also remove the co-signer in the new term which is a great benefit.
- Ask questions about fees and penalties for pre-payment, the life of the loan, the maximum interest rate and read the terms of agreement. Underline all those not easily understood and ask for explanation.
There you have the tips that one needs to think of before making any decision. After all, this is a long term contract of about thirty years. You want to be sure of all the terms. If down the road, you inherit some money or win the lotto or get lucky some other way, then you know the terms when it is time to consolidate the debt or loan of student.
By Roger Guzman, M.D. and Evelyn Guzman
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