If graduation has not yet fished you out into the reality of being held responsible for paying student loans, then it is time that you get started on organizing your loan receipts and prepare for a consolidation action plan.
In case you have already been graced with the standard 6 months period where you can prepare a future action plan (while your interests continue to accrue), then remember that even this grace period will seem short. Consolidation requires a lot of research and paperwork and hence professional aid and advice will prove beneficial.
This post is the first in our guide intended to aid you through the process of student loan consolidation. Let’s start with the basics and build a strong case for your loan consolidation!
What is Consolidation?
Think of it like refinancing your loan where you consolidate either all or some of your student loans into a single loan account and hence with a single due date and payment per month. It has certain advantages as well as disadvantages as well which we will discuss at length later.
Additionally, consolidation helps to reduce payments on your loan by extending the repayment period. Though this can let you get an interest break (especially if your loans have a variable rate), it will increase the total amount you have to pay over the life of the loan.
The next important question is “are you eligible for a student loan consolidation?”
Criteria for Eligibility
What makes you eligible for consolidating your student loans? Though some requirements may vary depending on the lender, the most common one include:
- You have a U.S. citizenship.
- You are no longer enrolled in the educational program these student loans were covering. Consolidation is meant only for those students that have either graduated or dropped-out.
- Your total outstanding balance for the federal student loans should be at least $7,500. But don’t worry; some lenders are known to consolidate lesser amounts too!
- All of your federal loans have to be in line with the eligibility criteria.
- None of your previous loans are in default. In case you have defaulted on a student loan, payment arrangements will have to be made before a consolidation is possible.
NOTE: This last point may be overcome if you agree to make satisfactory repayment arrangements with the current loan holders or if you agree to repay your consolidated Direct Consolidation Loan under:
- Income Contingent;
- Pay As You Earn Repayment Plan; or
- Income Based Repayment Plan.
Here you must make note of certain limitations to your case if you hope to qualify for a Direct Consolidation Loan. Primarily these are:
- You (the borrower) must have at least one Direct Loan or a Federal Family Education Loan (FFEL).
- The above loan(s) should already be in one of the following:
- The grace period;
- Repayment, inclusive of any deferment or forbearance; or
- Has a default status.
Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.
With this we come to the end of the first part of our guide. We will take you further in your preparation for consolidating your student loan.
For further information or any query, feel free to get in touch!
Part 2. Read more…
Sources:
http://studentaid.ed.gov/repay-loans/consolidation
http://loanconsolidation.ed.gov/borrower/bloans.html
http://www.finaid.org/loans/consolidation.phtml
http://www.finaid.org/loans/privateconsolidation.phtml
