What Is A Student Loan Debt Consolidation?

Posted on January 13, 2009
Filed Under Debt Consolidation |

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In it’s simplest and purest form, a Student Loan Debt Consolidation is the refinancing of all your individual student loans by “consolidating” all of them into a single basket for only one payment to all of the creditors.

The Problem:

The need for a consolidation of multiple student loans may only become apparent when the student feels overwhelmed and underconfident in his or her ability to meet all of the obligations required toward the repayment of their student debt.

It doesn’t seem to matter anymore, the age of the debtor.  Whether a student or an adult with a family, many people of all types are still plagued with debt.  For some reason we keep forgetting that a student loan is not a gift.  It is not yours to keep.  A student loan is just like any other loan.  If you borrowed the funds from a lender to pay for your university degree, you must pay it back.

This fact may become rather surreal for many students as they struggle to start a new existence for a few years within the confines of university life.  This may become more profound for students enrolled for longer periods, (8 to 10 years).

However, in reality, this just does not matter.

You borrowed the money.  You used the money.  You must now pay it back!!!

The student may sometimes choose to pay certain loans, bills and other debts over other financial obligations.  Reasons for neglecting some debt can include a change in priorities established by the student debtor, like a new family, new car or new house.

The goal of all students in debt, after all, is to find suitable employment capable of repaying their debt.  The faster you pay your loans, the better off you’ll be.  It makes little sense to go through life dragging your student loans around with you for a long period while you’re trying to start your new family, or move into a new home.

The Solution:

Fortunately, there is a solution for students who have multiple student loans outstanding. This is called a Student Loan Consolidation.  With this program, you must still repay the funds you borrowed through your usual monthly payment, but only to one lender - the lender who set up your student consolidation loan.

Think of debt consolidation as, refinancing.  The funds you borrow from one lender pays for the loan you owe to other lenders.

If you consolidated your student loans at a bank, your bank has in effect paid off all your previous lenders.  So now, instead of being obligated to multiple lenders you are only responsible to the bank for your monthly payments.

Your repayment terms are much simpler.  Another advantage is that a student loan debt consolidation is usually calculated as a weighted average of all the other loans.  The interest rate, in many cases, is lower, which brings down your monthly payments accordingly.  Other student loan debt consolidations are calculated at a fixed rate, protecting them from escalating interest rate hikes.

When researching on student loan debt consolidation, there are four plans to be aware of.

1.  The Standard Repayment Plan

This program may appeal to those who want to pay a fixed amount each month through fixed interest rates.

The Standard Repayment Plan provides you with up to 10 years to repay your loan.  You will have equal monthly payments divided among that time frame based on your fixed rate of interest.

2.  The Extended Repayment Plan

Extended Repayment Plans also have fixed interest rates attached to them, but it also takes it one step further by “extending” the time to pay off the student loan to between 12 and 30 years.  The time to be extended will depend on the total amount borrowed.  The result being that monthly payments are even lower.  BEWARE, that the longer you have a loan the more you will pay over time.  This is a trade off you need to be aware of.

3. The Graduated Repayment Plan

Like the Extended Repayment Plan, this program allows you to spread monthly student load debt consolidation payments over a period of between 12 and 30 years.  The difference however, is that your monthly payment will increase every two years.

4.  Income Contingent Repayment Plan

This plan has appeal to a growing number of people as it takes into account, their income.  This is the most user friendly option for consolidating student debt for many people. In the Income Contingent Repayment Plan, a reasonable amount for a monthly payment is determined.  This is based on annual gross income, family size, and the total of all direct student loan debt.  A great advantage to this student loan debt consolidation repayment plan, is that your monthly payments are spread throughout over 25 years.

If you’re terms and conditions for your student loans are close to ending, think carefully before taking on any more new debt.  If, on the other hand, you have many more monthly payments to make and have exhausted all avenues in dealing with the monthly obligations of your loans, than it may be time for a fresh start.  One of the above student loan debt consolidation plans may be perfect for you.

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