School Loan Consolidation

School Loan Consolidation- Questions and Answers

Why Do A School Loan Consolidation?

The most common reasons for doing a school loan consolidation are to just deal with one student loan payment and to obtain a lower payment than the borrower would have with several separate loans. There are also cases in which borrowers get behind on their student loans and are headed for default, which takes 270 consecutive days, or nine

months of missed payments. In that case if three or four loans are consolidated the clock is essentially reset, and the borrower will not be in jeopardy of defaulting if payments are again being made on a regular basis. For federally guaranteed school loans, if the borrower qualifies for consolidation the lender does not have the right to refuse the consolidated loan. In addition, for federal school loans the interest rate of the consolidated loan is set by law. It will be based on the weighted average of the individual school loans.

Can Private School Loans Be Consolidated?

This depends strictly on the lender who has no obligation to offer a loan consolidation. With a private school loan consolidation you are basically just replacing one or more private loans with another private loan. The interest rate on the consolidated loan may rise substantially, so borrowers should be very careful about the new interest rate they are taking on. Since private student loans will already have much higher interest rates than federal loans, the rate on a consolidated loan can be very high indeed, 15-18% is not unheard of. In recent times private student loan lenders have been turning down requests for school loan consolidations because of tight credit markets. So in that case the borrower is simply stuck making payments on several loans, and this can mean very high monthly payments. Borrowers need to take this into consideration before taking out the loans because if their starting salary upon graduation cannot support that load of debt, they will be in financial trouble almost from the start of making school loan payments. The best advice with regard to private school loans is to stay away from them if at all possible.

What If I Have A Perkins Loan?

You might want to think twice about a school loan consolidation if you have a Perkins loan, which is offered by colleges and universities to students with considerable need. These loans typically have the lowest interest rates of any type of school loan, and they also come with provisions such that the loan can be forgiven if the borrower will work in certain public service jobs after finishing school. These include teachers in certain needy districts, serving in the military or in certain government positions, some health care workers and even some attorneys. If a borrower wants to consolidate a Perkins loan with other types of federal school loans, like Stafford or PLUS loans, for example, the loan forgiveness provisions of the Perkins loan might be lost. If you have a Perkins loan be sure to speak with your loan councilor and understand your rights as a borrower.

How Much Money Should I Borrow With A School Loan?

A good guideline is to not borrow more than your expected starting salary. On top of that if you do a school loan consolidation you should arrange it such that your monthly payments are about 10% or less of your monthly gross pay. If you go much beyond that you will be overextended financially. Students should exhaust every other means of paying for college before taking out student loans. Here are 32 ways that college costs can be reduced: Lower College Costs.