Student loans are like a double edge sword. Without the loans you wouldn’t be able to get your college education and degree. But with the loans you are often saddled with a huge mountain of debt right as you are starting out a new career which doesn’t leave much money left over from the new job you got your degree for!
If you are in the position of student loans putting a strain on your budget or actually making your finances go into the red and giving your credit score a bad name, then you may want to look into consolidating your student loans into a single loan that has a lower interest rate, longer life, and lower monthly payment.
A direct student loan consolidation might be for you if you are struggling to meet your monthly obligations and have used your deferment options already. Especially if you are about to default on your loan, you should check into consolidating it to save your credit rating. A direct student loan pays off all your old individual loans and leaves you with a new loan to start all over again; it is like wiping the slate clean and giving you a fresh start.
The deferment options become available to you again with the new loan in case you ever need it again and you will usually qualify for a much lower interest rate since the consolidated loan will be for a larger amount. And when you consolidate, the old loans show up as paid on your credit report so it will help to improve your credit standing as long as you pay your new loan on time each month and it should be easier to do with a lower payment amount.
There are actually four plans to look into when it comes to repaying your student loan consolidation:
Standard repayment plan: This gives you a set monthly payment amount for a period of up to ten years.
Extended repayment plan: This plan also has a fixed payment amount each month but the life of the loan can be extended to between 12 to 30 years, depending on how much you borrow. This makes the payments automatically lowered since they are spread over such a longer period of time, however when you do this the actual total amount you repay in the end will be larger due to more years of interest.
Graduated repayment plan: This option will also allow you to stretch your payments over a longer period of 12 to 30 years. The difference is that your payments will increase every two years. This could be beneficial to you if you are just starting out in your career and not making as much money now as you will be in the future.
Income contingent repayment plan: The payment plan is designed for those with a job and family because it takes a look at your annual income and total student loan debt along with the size of your family and then comes up with a payment amount and spreads it out over a 25 year period.
If you are still a student in school when you consolidate, it is possible that you will qualify for a six month grace period before you have to start making payments. A consolidation loan will benefit those who are looking at many years of payments ahead. If your student loans are almost paid off and you are having financial trouble, you may want to look into forbearance and deferment first because if you refinance, your loans will be spread out over more years and that will increase the total amount you will have to repay.