There are many student loan borrowers today who are turning to loan consolidation programs in order to make their payments more manageable and to reduce the likelihood of negative credit consequences due to a possible default.
Because there are numerous types of student loans, however, those who are considering a student loan consolidation should understand the different types of available loan consolidation programs in order to determine which would be best in their particular situation.
How to Find The Best Student Loan Consolidation Company?
When one is considering a student loan consolidation, there are several factors that should be taken into account in order to determine if such a loan will be the best choice. Some of these include:
- Amount of debt that may be consolidated and / or refinanced. Many students carry student loan debt in excess of $100,000. Therefore, it is important to determine how much debt may be consolidated into one single new loan.
- Interest rate. In today’s low interest rate environment, it is likely that a borrower can obtain a lower interest rate than they possessed on one or all of their previous student loans.
- Loan term. The duration of time that one has to repay the new loan should also be considered. While a longer time period will reduce the amount of monthly payment, it is important to also consider the total amount that one will be paying out over time.
For Borrowers with Government Backed Student Loans
Those who possess government backed student loans have several options available to them in terms of loan consolidation. Such programs may be found through the Federal Family Education Programs, as well as the Direct Loan Program that were created via the Higher Education Act.
These programs allow borrowers to combine the balances from multiple government backed student loans into just one loan with one single monthly payment due. Because the loan term on the consolidation loan is oftentimes extended, it is likely that the borrower’s new payment will be less than the total amount of student loan payments that they were previously paying.
The consolidation loans that are offered for government backed student loans have varying options for repayment. One plan, the Income Contingent Repayment Plan, is in most cases the best option for those who are earning lower income as the borrower’s monthly loan payment is based on his or her income, as well as their family size and the amount that is borrowed. The maximum repayment period with this plan is 25 years, after which time any remaining debt will be discharged.
Another repayment plan offered with consolidation of government backed student loans is the Income-Based Repayment Plan, or IBR. This, too, bases the borrower’s monthly payment on their income amount. In this case, the borrower must also be able to prove at least a partial financial hardship.
A borrower may qualify as having a partial financial hardship if the monthly amount that they would be required to pay on their IBR-eligible loan under a 10-year standard repayment plan would be higher than the monthly amount that they would be require to repay under IBR. In this case, once a borrower qualifies as having a partial financial hardship, they may continue to make their loan payments under this plan even if they no longer have such a financial hardship. For more information on consolidating government backed student loan balances, visit here.
For Borrowers with Private Student Loans
In many cases, government backed student loans are not enough to cover one’s full college tuition cost. Therefore, many students must supplement these funds with additional loans that are obtained from private sources.
Borrowers can also consolidate these loans by obtaining a student loan consolidation through a private lender such as a bank or credit union. These student loan consolidations also offer the ability to combine multiple loans into one loan with just one monthly payment. And, because the loan term is typically extended, the monthly payment is oftentimes lower than the borrower’s previous amount of total loan payments.
These loans are based on the borrower’s credit and annual income amount. If a borrower does not qualify based on their own income and / or credit history, they may require the use of a cosigner. If so, in many cases, the cosigner’s name may be removed from the loan after a certain amount of time has elapsed. For more information on how one may qualify for a private student loan consolidation, or to begin the application process, get started with the loan process now.