To consolidate your school loan means to merge your multiple loans under one debt. Loan consolidation provides you with a number of benefits like low-interest rates, low monthly installments, singular payment every month etc. In short, if you want to manage your school loan debt smartly, the best option for you is to consolidate them.
Before you choose to consolidate your school loan, you need to develop an in-depth understanding of consolidation. This is an option cum facility that helps you manage your finances smartly and efficiently by providing you with a number of conveniences. For example, it allows you to make payments to only one lender, reduces your monthly loan payments, improves your credit scores, helps you save money to pay off your high-rate debts like credit cards etc.
However, the foremost factor you must know is if you are eligible to consolidate your school loan in the first place. Being a borrower, you can look into the following and find the best suitable category for yourself:
1- Consolidating Parties: Both school students and their parents can consolidate their borrowings, but separately. You need to keep this in mind that students and parents can not consolidate their loan together under one package but separately.
2- Consolidating with Spouse: Married students also can not consolidate their loans together with their spouse, because each spouse becomes responsible for the full amount which could not be separated if the couple gets divorced.
3- Timing of consolidation: You can consolidate your loan during your grace period or when the loan enters the repayment mode. However, you can not consolidate your school loan if you are still in school.
4- School students with default loans: Loans that are in default can be consolidated but should have a satisfactory repayment arrangement.
The next step is to know how many plans are available and which plan suits your credentials. There are several programs which are categorized under two main headings: federal consolidation loans and private consolidation loans.
There are two major categories of federal loan consolidation: Federal Family Education Loan (FFEL) program and the Federal Direct Loan program.
Federal Family Education Loan program is the type of consolidation program which offers loan from private lenders but it is guaranteed by the guarantors and reinsured by the federal government. You can avail these 4 types of federal consolidation loans;
- Stafford (Subsidized) - Those who are enrolled in school at least half-time can apply for this loan. The interest being accrued is paid by the federal government.
- Stafford (Unsubsidized) - It is different from subsidized loans as the interest that is being accumulated is payable by the student even if he is enrolled in school. They are mostly given to those having maximum borrowing cap.
- PLUS - These loans enable parents having good credit history to pay for their children's educational expense.
- Perkins - This type of loan provides low interest to the needy students who want to support their post-secondary education.
Federal Direct Loans are available from the US Department of Education. Under direct loan program you can avail the following loans:
- Direct Subsidized Consolidation Loan combines federal student loans eligible for interest subsidies, such as subsidized FFELP and Direct Loans, and Federal Perkins Loans.
- Direct Unsubsidized Consolidation Loan combines federal student loans not eligible for interest subsidies. If any one of the loans to be consolidated is unsubsidized, then you will receive an Unsubsidized Direct Consolidation Loan.
- Direct PLUS Consolidation Loan combines FFELP PLUS and Direct PLUS loans.
Private consolidation loans are the ones that you can avail from private lenders for eg. banks. If you ever plan to consolidate your federal and private loan always remember to consolidate them separately. If combined together, they can lead to a higher interest charge than you would pay if you keep them separately.
After understanding which program suits you best. The next step is to find a lender that offers good and competitive package. In order to choose a consolidating company, you should try to know each and everything about that firm like;
- For how long they have been into the business?
- Their consolidation program is enrolled under federal loan or the private loan?
- What type of repayment programs does the company offer and how will it arrange a customize plan that works best for the borrower?
- What borrower benefits or discount program does the company offer and how can it be availed?
- What is the application process and do they charge any fee or credit checks?
After deciding which package you would take-up and which consolidating company you prefer to consolidate your loan from, ask for their information package either by post or by e-mail. The package contains details about discounts and interest rates.
Moreover, one can easily locate the student loan information by him or herself as these companies also have loan counselors to provide guidance step by step. If you agree to their terms and conditions present in the form, the next step is to sign it and resent it to the company. Once the application is received, they contact your previous lender and ask for the exact amount you owe them. After receiving a verification certificate from the lender, they send the check of the amount payable by you.
An assurance is sent via letter by the consolidation company giving your new balance statement. This is a confirmation that you have successfully availed the school consolidation loan