Repay Student Loans

By Michael Wai W

By Richard Shelmerdine

Article by: Sarah Russell

If you’ve recently graduated from college, you’ve probably been bombarded with mailings and advertisements urging you to refinance (or consolidate) your student loans right away. But wait, what is loan consolidation? And why should you do it?

If you’ve just graduated from college, you’ve probably got a number of different student loans, all in different amounts from different lenders at different interest rates. Loan consolidators (which can be private banks, lenders or government agencies) pay off all your individual loans in exchange for a single loan in the same amount issued to you. So now instead of all those different loans, you’ve got one loan that you repay to the consolidator.

Refinancing your student loans reduces your monthly payments and locks in a fixed interest rate. In most cases, student loans have variable interest rates set a few points below prime. As interest rates go up, so will the interest rate on your loans. When you refinance your loans, you lock in an interest rate based on the current market conditions that will be set for the life of your loan. Therefore, it’s important to evaluate the market before making the decision to consolidate. Right now, interest rates are low, but they’re going up and most economists predict that they’ll continue to go up for awhile. So for many people, this is a good time to refinance.

Your credit history will also determine your eligibility for loan consolidation programs. Loan consolidators can be picky in who they accept for their programs, so the option to refinance is usually only available to individuals who have established good credit by paying their loans back on time. If you’ve missed payments or made payments consistently late, you may not be offered the best terms, if you’re accepted at all. If your application is denied the first time, call the consolidator and talk to a loan officer about the reason for your rejection. The officer may offer you advice on how to qualify for their program at a later date.

If you decide to refinance, be sure to consolidate federal loans and private loans separately from each other. When you consolidate your loans, you’re typically offered a rate that’s 1-2% lower than the average rate of your loans. Federal student loans often carry much lower interest rates than private loans, so consolidating them together can bring up the average interest rate of your loans and leave you with a higher fixed rate locked in. If you only have one private loan, it may not make a difference, but it’s important to assess your options before committing to refinance.

Is there anyone who shouldn’t consolidate? Let’s look at a scenario. Tracy has 2 loans for $5,000 each that are scheduled to be paid off within 5 years. She can afford to make her monthly payments but wants to see if she can save a little extra cash each month by consolidating. She finds out that she can refinance the loans into a $10,000 consolidation loan to lower her monthly payments and she’ll be eligible to extend her payments over 8 years. But because she’s extended the life of her loans, she’ll be paying interest over a longer period of time and may wind up paying more overall than if she had kept her loans as they were.

It is tempting to pay less per month but if you can afford to pay off your loans in a shorter period of time, then you’ll likely save money on interest in the long run. Obviously every situation is different and you won’t find all your answers in a short article like this. But if you think loan consolidation might be right for you, check out the Student Loan Network’s site at Studentloanconsolidator.com for more information or speak with a loan officer or financial planner to see what your options are.

About The Author

This article was published by Sarah Russell on Smart Young Money – a collection of money management resources for teens and young adults. For great information on using credit, managing debt and more for young people, visit http://www.smartyoungmoney.com.

Article by Roger Guzman, M.D.

Private student loan consolidation cannot be generally mixed with federal student loans due to the low interest rate on the latter. However, there are several options open to refinance the private student loans by replacing them with another.

The main advantage of doing this is that instead of making several monthly payments, only a single payment is made every month that may be reduced although this will cost one in terms of higher interest amount paid because the single loan may be for a longer period of time.

There is a way to secure a lower interest rate. The private student loan is based on the credit score. If the credit score has improved by 50 to 100 points due to the fact that you have graduated and have a job, then you will be rewarded with a low interest rate.

Another way of getting a better deal when considering a private student loan consolidation is to talk to the holders of your debts. They may be willing to negotiate with you and cut down your interest rate so that they can keep you as their customer.

This type of loan also incurs the same interest that the home equity loan has. You can have a home equity loan at a fixed rate, thus locking in the low interest rate. However sometimes a variable rate looks attractive as long as you can watch it and lock it the moment it is on an upward trend.

Study carefully the terms of the agreement. Find out if the interest rate is variable or fixed. Ask also about fees and if there are prepayment penalties. Find out how much they are for each of the following lenders. Write them down so you can get the best deal from among the following list and whatever other companies willing to do the private student consolidation loan with you:

Key Education Consolidation Loan – $75,000 maximum for non-key debt, $7500 minimum, 10, 15, 30 year repayment term, no prepayment penalty and no fees

Citi Student Loans – $75,000 maximum, $7500 minimum, choose fixed or variable rate, up to 30 year term rate, rate reduction after 48 monthly on time payments, no prepayment penalty

Study carefully the terms of the agreement. Find out if the interest rate is variable or fixed. Ask also about fees and if there are prepayment penalties. Find out how much they are for each of the following lenders. Write them down so you can get the best deal from among the following list and whatever other companies willing to do the private student consolidation loan with you:

Key Education Consolidation Loan – $75,000 maximum for non-key debt, $7500 minimum, 10, 15, 30 year repayment term, no prepayment penalty and no fees

Citi Student Loans – $75,000 maximum, $7500 minimum, choose fixed or variable rate, up to 30 year term rate, rate reduction after 48 monthly on time payments, no prepayment penalty

Study carefully the terms of the agreement. Find out if the interest rate is variable or fixed. Ask also about fees and if there are prepayment penalties. Find out how much they are for each of the following lenders. Write them down so you can get the best deal from among the following list and whatever other companies willing to do the private student consolidation loan with you:

Key Education Consolidation Loan – $75,000 maximum for non-key debt, $7500 minimum, 10, 15, 30 year repayment term, no prepayment penalty and no fees

Citi Student Loans – $75,000 maximum, $7500 minimum, choose fixed or variable rate, up to 30 year term rate, rate reduction after 48 monthly on time payments, no prepayment penalty

Educated Borrower Private Consolidation Loan – $300,000 maximum, $7500 minimum, up to 30 year repayment term, no prepayment penalty and 0 to 5% origination fees

Sallie Mae Private Consolidation Loan – $275,000 maximum, $5000 minimum, 15 to 30 year repayment term, choose between fixed and variable rate, no prepayment penalty and no fees

SC Student Loan – PAL Consolidation Loan – $150,000 maximum, $5000 minimum, 10 to 30 year repayment term, choose between fixed and variable rate, no prepayment penalty and no fees

Next Student Private Consolidation Loan – $300,000 maximum, $7500 minimum, up to 30 year repayment term, no prepayment penalty and 0 to 5% origination fees

Make sure when you are considering to go this route that you clarify all the terms of the agreement as the above may have changed and that all are put in writing and signed by both parties. The best one is the one that fits your needs. There you have some of the possible lenders and the other options when considering to do the private student loan consolidation.

About The Author
Brief Biography: Dr. Guzman worked for the Atlantic Health Corporation and was consultant to St. Joseph’s Hospital, Sussex Mental Health Clinic, and St. Stephen Mental Health Clinic for many years. He was Director of Forensic Psychiatry at Centracare for ten years and published numerous articles, including financial ones in the Journal of the American College of Forensic Psychiatry and other medical magazines.

Copyright © May 28, 2009 Roger Guzman, M.D. (Private Student Loan Consolidation, Is There a Best One?) All Rights Reserved. You may copy and publish this article as long as the text, the author’s name, the active links and this notice remain the same. http://www.debtchallenges.com/