Higher education cost is rising incessantly, so the students as well as the parents rely on the student loan to manage the expenses. After the recent economic meltdown, most of the people suffered job loss or wage deduction. Most of the young people failed to secure a job as the job market has not recovered from the distressful situation. In this situation, most of people defaulted on payment and complicated their financial situation. If you’re in a similar situation, then student loan consolidation can be a better option to eliminate your financial woes. You can actually manage your multiple student loan bills if you consolidate debt. In case you aren’t confident about student loan consolidation, you can continue reading the article to get more information on it.
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Is consolidation a good option for you?
Debt consolidation is a process where you can manage to combine your federal student loans into a single loan with one monthly payment. This can be an excellent option under the following scenario.
1. Unable to afford the monthly payments on your federal student loans under any of the options in Student Loan Repayment Options. You may also fail to qualify for a postponement or for loan cancellation.
2. You’re eligible for some of the payment plans described in Student Loan.
3. You’ve overwhelming debt and you fail to afford your monthly payments in spite of the repayment option.
3. You’re able to afford your monthly payments under a standard plan, but you’re keen to refinance at a lower interest rate.
4. You’ve defaulted on more than two payments on your student loan and keen to eliminate your financial woes.
Can you qualify for student loan consolidation?
Most of the federal student loans can be consolidated inclusive of the subsidized and unsubsidized Stafford loans, Direct Loans, Supplementary Loans for students along with Perkins loans.
Therefore, borrowers with these loans can effortlessly consolidate their debts after they complete their graduation or drop below half-time enrollment. Generally, the consolidation loans do not have grace period while you are in school or for the six months afterwards. However, these types of loans may not be a good option when you’re in school or just graduated and don’t have a job.
Are you aware of its limitations?
Before you apply for the loan, make sure you’re aware of the limitation to loan consolidation. Remember, you may not be able to include private student loans in a federal consolidation loan. The spouses are not allowed to consolidate their loans into a single consolidation loan. The borrowers are required to meet certain criteria before consolidating their debts.
What are the benefits and drawbacks of debt consolidation?
Benefits of consolidation:
One of the most important advantages of debt consolidation is that if you default on your government loans, consolidation may help you get out of default. It can also help you make your monthly payment affordable. If the interest rates are low, you can manage to lock in a low rate on your student loans.
Drawbacks of consolidation:
There are certain drawbacks of consolidation that people needs to know, especially who’re considering consolidation. If your loans are old, then consolidation can increase the interest rate on it. In most of the cases, consolidation may stretch your repayment period. Therefore, you may end up paying more interest over the life of the loan. Remember, you may not be able repair your credit report through consolidation. If you’ve defaulted on your previous loans, then it can be reported as “previous loans were in default but now paid in full through the new loan.”
How direct consolidation loan program work?
The repayment options on the direct consolidation loan program are extremely flexible. Some of the plans in this program are a standard plan, a graduated plan, an extended plan and an Income Contingent Repayment Plan (ICRP) or an Income Based Repayment Plan (IBR).
If you’ve defaulted on payment, then a Direct Consolidation Loan is an excellent way to get out of default and obtain a repayment plan that is affordable.
Therefore, debt consolidation is an excellent option to pay off your student loan. However, you need to evaluate your situation to know whether it’s a good option for you. Once you pay off your loans, you can regain control over your financial situation.